Minimum Wage for Employees Who Receive Tips

Minimum Wage Rules and Calculations for Tipped Workers

Two Female Friends Sitting At Table In Coffee Shop Being Served By Waitress
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What's the minimum wage for servers and other staff who earn tips? The minimum wage for tipped employees is lower than the regular minimum wage, but that doesn’t mean employers can always pay tipped workers less than regular staff.

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 have a higher minimum wage than the federal rate. In those locations, the higher rate applies.

Note

If you're an employee who receives tips, even though your hourly rate may be low, your total hourly rate must reach the designated minimum wage.

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 ($10.34 in 2022) 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.

Note

As of December 28, 2021, employers can only take a tip credit when their tipped employees perform work that is part of the employee's tipped occupation. Work that is part of the tipped occupation includes work that produces tips as well as work that directly supports tip-producing work.

Federal Contract Workers

An exception to the rule applies to federal contract workers who receive tips. As of January 1, 2022, these federal workers must be paid a cash wage of at least $7.90 per hour.

State-by-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 $9.80 per hour, and in Massachusetts it is $6.15 per hour. The combined cash and tip state minimum wages for the two states is $12.80 per hour in Arizona and $14.45 per hour in Massachusetts.

Note

All employers must adhere to the law in their state when paying employees. If you're not sure what you should be paid, check this chart of state minimum wage laws for tipped workers.

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.

Note

While the federal minimum wage is guaranteed, tipped workers receive some of this income from employers and some from tips. Workers always earn more if the tips received bring their earnings above the minimum wage.

In a state with a higher minimum wage, the total will reach the highest minimum wage for that location. Let's use Colorado as an example. In Colorado, for 2021, the tip credit is $3.02; add that to the tipped worker minimum cash wage of $9.30, and you get the state minimum wage of $12.32.

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.

The Bottom Line

Employees Who Earn at Least $30 per Month in Tips Are Defined as Tipped Workers: Under federal law, they may be paid a lower minimum wage as long as the balance is made up in tips.

Tipped Workers Often Earn a Lower Minimum Wage Plus Tips: If workers’ average hourly earnings don’t reach the state or federal minimum wage, employers must make up the difference.

Employers Are Allowed a Tip Credit Provision That Allows Them to Pay Less per Hour: 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).

Not Every State Has a Lower Minimum Wage for Tipped Employees: Some states require workers to be paid the full state minimum wage before tips.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Department of Labor. "Tips." Accessed Dec. 1, 2021.

  2. Department of Labor. "Minimum Wage." Accessed Dec. 1, 2021.

  3. Alaska Department of Labor and Workforce Development. "Alaska Minimum Wage to Remain Unchanged in 2022." Accessed Dec. 1, 2021.

  4. Federal Register. "Tip Regulations Under the Fair Labor Standards Act (FLSA); Partial Withdrawal." Accessed Dec. 1, 2021.

  5. U.S. Department of Labor. "US Department of Labor Announces Annual Update to Current Minimum Hourly Wage Rate for Federal Contract Workers." Accessed Dec. 1, 2021.

  6. Mass.gov. "Massachusetts Law About Minimum Wage." Accessed Dec. 1, 2021.

  7. Industrial Commission of Arizona. "Minimum Wage Information." Accessed Dec. 2, 2021.

  8. U.S. Department of Labor. "Fact Sheet #15: Tipped Employees Under the Fair Labor Standards Act (FLSA)." Accessed Dec. 1, 2021.

  9. Colorado Department of Labor and Education. "Press Release: Public Comment Now Open on Colorado’s 2021 Minimum Wage." Accessed Dec. 1, 2021.

  10. Department of Labor. "Minimum Wages for Tipped Employees." Accessed Dec. 1, 2021.

  11. U.S. Department of Labor. "Minimum Wage for Tipped Employees." Accessed Dec. 1, 2021.

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