If you’re a tipped worker, it’s important to understand state and federal law regarding employees who receive tips as a regular part of their compensation. How much you earn will depend on where you live and what the laws are in your state.
Definition of Tipped Workers
The federal government sets a required minimum wage for workers who receive tips on a regular basis and defines tipped employees as those who regularly receive at least $30 a month in tips. However, some states and cities have a higher minimum wage than the federal rate. In those locations, the higher rate applies. That amount varies based on your location. For example, the federal minimum wage is $7.25 per hour. That means that in every state, your combined cash and tip rate must equal (or exceed) that amount. The total hourly wage you will earn is the minimum wage for your state, unless you live in a state that requires employers to pay a minimum wage before tips. Some states, like Alaska, require that tipped workers be paid the full state minimum wage ($10.85 in 2023) before tips.
Federal Minimum Wage for Tipped Employees
The Fair Labor Standards Act mandates that employees who earn $30 or more per month in tips be paid at least $2.13 per hour in wages. This means that if you’re a waiter, bartender, or another service employee who receives tips, your employer is only required to pay you $2.13 per hour in wages.
Tip Credit Provision
However, the total amount earned ($2.13/hour plus tips) must equal the federal minimum wage. This is known as the tip credit provision or tip credit allowance. This provision allows your employer to pay you less than the minimum wage because you are receiving tips on a regular basis. For example, in Iowa the minimum cash wage is $4.35 and the tip credit is $2.90, bringing the total hourly wage up to $7.25 (the state and federal minimum).
Federal Contract Workers
An exception to the rule applies to federal contract workers who receive tips. As of January 1, 2023, these federal workers must be paid a cash wage of at least $13.75 per hour.
State Minimum Wage for Tipped Workers
Some states require employers to pay their workers more than the federal tipped minimum wage. For example, in 2022, the Arizona minimum cash wage for tipped workers is $10.85 per hour, and in Massachusetts it is $6.75 per hour. The combined cash and tip state minimum wages for the two states is $13.85 per hour in Arizona and $15.00 per hour in Massachusetts. If there are no laws stipulating a minimum wage in the state where you work, the federal minimum wage is applicable.
Calculating Total Hourly Earnings With Tip Credits
The federal minimum tip wage is combined with a tip credit to reach the federal minimum wage. For example, the maximum federal tip credit is currently $5.12 per hour. If you add the $5.12 per hour plus the minimum tipped wage of $2.13, you reach the federal minimum wage of $7.25 an hour. In a city or state with a higher minimum wage, the total will reach the highest minimum wage for that location. Let’s use Florida as an example. In Florida, effective September 30, 2022, the tip credit is $3.02. Add that to the tipped worker minimum cash wage of $7.98, and you get the state minimum wage of $11.00. Again, the hourly earnings can be higher based on the amount of tips the worker earns. But if you’re a tipped worker, it’s in your best interests to know the minimum your employer is allowed to pay you under state and federal law.
For example, in New York employers must pay overtime hours worked at 1.5 times the minimum wage rate minus the applicable tip credit. In California, tips are not considered part of your regular pay rate when overtime is calculated. Check with your state department of labor for regulations in your location.
