Remote and Telecommute Jobs » The Official Facts on Tip Income

The Official Facts on Tip Income

From the official source: The US Department of Labor

Tipped Employees Under the Fair Labor Standards Act (FLSA)

Before reading the content, please note: In the Consolidated Appropriations Act, 2018 (Act), Congress vacated the Department’s 2011 regulations that barred tip pooling when employers do not claim a tip credit under section 3(m) of the Fair Labor Standards Act. Statements in this document to the contrary are no longer WHD policy. The Act did not impact WHD’s enforcement when an employer claims a tip credit. For further information, see FAB 2018-3.

For current guidance on dual jobs and related duties under Section 3(m) of the Fair Labor Standards Act, see FAB 2019-2.

An employer may pay a tipped employee not less than $2.13 an hour in direct wages if that amount plus the tips received equal at least the federal minimum wage ($7.25), the employee retains all tips and the employee customarily and regularly receives more than $30 a month in tips. If an employee’s tips combined with the employer’s direct wages of at least $2.13 an hour do not equal the federal minimum hourly wage, the employer must make up the difference.

Some states have minimum wage laws specific to tipped employees. When an employee is subject to both the federal and state wage laws, the employee is entitled to the provisions of each law which provide the greater benefits.

Minimum Wage for 2024 by State

2024 Tipping Income by State (Source DOL)

JurisdictionBasic Combined Cash & Tip Minimum Wage RateMaximum Tip Credit Against Minimum WageMinimum Cash Wage 1Definition of Tipped Employee by Minimum Tips received (monthly unless otherwise specified)
FEDERAL: Fair Labor Standards Act (FLSA)$7.25$5.12$2.13More than $30
State requires employers to pay tipped employees full state minimum wage before tips
Alaska$11.73
California:$16.00
Guam$9.25
Minnesota:2
Large employer: annual gross revenue of at least $500,000$10.85
Small employer: annual gross revenue of less than $500,000$8.85
Montana:
Business with gross annual sales over $110,000$10.30
Business not covered by the Fair Labor Standards Act with gross annual sales of $110,000 or less$4.00
Nevada 10Employees not offered qualifying health insurance by employer$11.25
Employees offered qualifying health insurance by employer$10.25
Oregon 12The Oregon minimum wage varies by region.$14.20
Washington$16.28
State requires employers to pay tipped employees a minimum cash wage above the minimum cash wage required under the federal Fair Labor Standards Act ($2.13/hour)
Arizona$14.35$3.00$11.35Not specified
Arkansas$11.00$8.37$2.63Not specified
Colorado$14.42$3.02$11.40More than $30
Connecticut 14$15.69
Hotel, restaurant$9.31$6.38Not specified
Bartenders who customarily receive tips$7.46$8.23
Delaware$13.25$11.02$2.23More than $30
District of Columbia15$17.00$9.00$8.00Not specified
Florida 17$12.00$3.02$8.98More than $30
Hawaii*$14.00$1.25$12.75More than $20
*Hawaii: Tip Credit in Hawaii is permissible if the combined amount the employee receives from the employer and in tips is at least $7.00 more than the applicable minimum wage.
Idaho$7.25$3.90$3.35More than $30
Illinois$14.0040% of the applicable minimum wage ($5.60)$8.40Not specified
Iowa$7.2540% of the applicable minimum wage ($2.90)$4.35More than $30
Maine$14.1550% of the applicable minimum wage ($7.07)$7.08More than $175
Maryland$15.00$11.37$3.63More than $30
Massachusetts$15.00$8.25$6.75More than $20
Michigan$10.33$6.4038% of the applicable minimum wage ($3.93)Not specified
Missouri$12.3050% of the applicable minimum wage ($6.15)$6.15Not specified
New Hampshire$7.25$3.98$3.27More than $30
New Jersey 3$15.13$9.87$5.26More than $30
New Mexico$12.00$9.00$3.00More than $30
New York$15.00Tipped workers’ minimum wage rates vary by region and type of employer. See New York’s Minimum Wage: Overview.Not specified
North Dakota$7.2533% of the applicable minimum wage ($2.39)$4.86More than $30
Ohio 5

Employers with annual gross receipts of $385,000 or more
$10.45$5.20$5.25More than $30
Oklahoma 6$7.25$5.12$2.13Not specified
Pennsylvania$7.25$4.42$2.83$135 per month
Rhode Island$14.00$10.11$3.89More than $30
South Dakota$11.2050% of the applicable minimum wage ($5.60)$5.60More than $35
Vermont
An employee of a hotel, motel, tourist place, or restaurant who customarily and regularly receives more than $120.00 per month in tips for direct and personal customer service.
$13.67$6.83$6.84More than $120
Virgin Islands$10.50$6.3040% of the applicable minimum wage ($4.20)Not specified
Wisconsin 8$7.25$4.92$2.33Not specified
West Virginia 7$8.7570% of the applicable minimum wage ($6.13)$2.62Not specified
State minimum cash wage payment is the same as that required under the federal Fair Labor Standards Act ($2.13/hr.)
Alabama 9$7.25$5.12$2.13More than $30
American SamoaSpecial minimum wage rates$2.13More than $30
Georgia 9$7.25$5.12$2.13More than $30
Indiana$7.25$5.12$2.13More than $30
Kansas 16$7.25$5.12$2.13Not specified
Kentucky$7.25$5.12$2.13More than $30
Louisiana 9$7.25$5.12$2.13More than $30
Mississippi 9$7.25$5.12$2.13More than $30
Nebraska$12.00$9.87$2.13Not specified
North Carolina 4$7.25$5.12$2.13More than $20
Commonwealth of the Northern Mariana Islands$7.25$5.12$2.13More than $30
Puerto Rico 18$9.50$7.37$2.13More than $30
South Carolina 9$7.25$5.12$2.13More than $30
Tennessee 9$7.25$5.12$2.13More than $30
Texas 16$7.25$5.12$2.13More than $20
Utah 16$7.25$5.12$2.13More than $30
Virginia$12.00$9.87$2.13More than $30
Wyoming 13$7.25$5.12$2.13More than $30

Some states set subminimum rates for minors and/or students or exempt them from coverage or have a training wage for new hires. Some local governments set minimum wage rates higher than their respective state minimum wage. Such differential provisions are not displayed in this table.

FOOTNOTES

1 Other additional deductions are permitted, for example for meals and lodging.

2 Minnesota. A large employer means an enterprise whose annual gross revenue is not less than $500,000. A small employer means an enterprise whose annual gross revenue is less than $500,000.

3 New Jersey. An employer is eligible to apply a tip credit against the full state minimum hourly wage only if the tipped employees have been informed in advance of the amount of the cash wage that is to be paid; the amount of the tip credit claimed by the employer; that all tips received must be retained by the employee, except in case of a valid tip pool arrangement limited to tipped employees; and of the requirements of the relevant New Jersey regulations.There is a minimum wage of $13.73 per hour for seasonal and small employers who employ fewer than 6 people.

4 North Carolina. Tip credit is not permitted unless the employer obtains from each employee, either monthly or each pay period, a signed certification of the amount of tips received. Employers must notify employees in advance of the amount of cash wages they will be paid and the amount that wages will be increased using the tip credit.

5 Ohio. For employees of employers with gross annual sales of less than $385,000, the state minimum wage is $7.25 per hour.

6 Oklahoma. For employers with fewer than 10 full-time employees at any one location who have gross annual sales of $100,000 or less, the basic minimum rate is $2.00 per hour. Employers with ten or more full time employees at any one location or annual gross sales over $100,000 that are not covered by the FLSA can take a tip credit of no more than 50 percent ($3.62) of the applicable minimum wage of $7.25.  The State law  excludes from coverage any employment that is subject to the federal Fair Labor Standards Act.

7 West Virginia. The state minimum wage law applies only to employers with six or more employees and to state agencies.

8 Wisconsin. $5.90 per hour may be paid to “opportunity employees” — employees who are not yet 20 years old and who have been in employment status with a particular employer for 90 or fewer consecutive calendar days from the date of initial employment. Additionally, a cash wage of $2.13 per hour may be paid to an opportunity employee who is a tipped employee.

9 The following states do not have state minimum wage laws: Alabama, Louisiana, Mississippi, South Carolina, and Tennessee. Georgia has a state minimum wage law, but it does not apply to tipped employees. Employers in these states must pay employees covered by the Federal Fair Labor Standards Act at least the federal minimum wage.

10 Nevada. Effective July 1, 2024, there will be a uniform minimum wage of $12.00 per hour for all employees. 

11 US Virgin Islands. The Wage Board has been authorized since 2020 to increase the minimum cash wage for tipped tourist service and restaurant employees to a rate not greater than 45% of the minimum wage or less than the federal minimum wage for tipped employees.

12 Oregon. The standard minimum wage in Oregon is $14.20 per hour. The minimum wage in the Portland metro area is $15.45 per hour and the minimum wage in nonurban counties is $13.20 per hour.

13 Wyoming. The Wyoming minimum wage is $5.15 per hour. Employers must pay employees covered by the federal Fair Labor Standards Act at least the federal minimum wage.

14 Connecticut. The Connecticut minimum wage is adjusted annually based on a set formula.

15 District of Columbia. Pursuant to a ballot initiative, the minimum cash wage for tipped workers in the District of Columbia increased to $8.00 per hour on July 1, 2023 and it is scheduled to gradually increase annually until it reaches the full minimum wage. Additionally, the District of Columbia minimum wage is adjusted annually on July 1 based on a set formula.

16 The minimum wage laws in Kansas, Oklahoma (see note 6), Texas, and Utah exclude from coverage any employment that is subject to the federal Fair Labor Standards Act.

17 Florida. The Florida minimum wage is scheduled to increase by $1.00 every year on September 30th until reaching $15.00 on September 30, 2026.

18 Puerto Rico. The minimum wage will increase to $10.50 per hour on July 1, 2024, unless the Commonwealth issues a decree changing the amount.

Characteristics

Tipped employees are those who customarily and regularly receive more than $30 per month in tips. Tips are the property of the employee. The employer is prohibited from using an employee’s tips for any reason other than as a credit against its minimum wage obligation to the employee (“tip credit”) or in furtherance of a valid tip pool. Only tips actually received by the employee may be counted in determining whether the employee is a tipped employee and in applying the tip credit.

Tip Credit: Section 3(m) of the FLSA permits an employer to take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between the required cash wage (which must be at least $2.13) and the federal minimum wage. Thus, the maximum tip credit that an employer can currently claim under the FLSA section 3(m) is $5.12 per hour (the minimum wage of $7.25 minus the minimum required cash wage of $2.13). Under certain circumstances, an employer may be able to claim an additional overtime tip credit against its overtime obligations.

Tip Pool: The requirement that an employee must retain all tips does not preclude a valid tip pooling or sharing arrangement among employees who customarily and regularly receive tips, such as waiters, waitresses, bellhops, counter personnel (who serve customers), bussers, and service bartenders. A valid tip pool may not include employees who do not customarily and regularly received tips, such as dishwashers, cooks, chefs, and janitors.

Requirements

The employer must provide the following information to a tipped employee before the employer may use the FLSA 3(m) tip credit:

1) the amount of cash wage the employer is paying a tipped employee, which must be at least $2.13 per hour;

2) the additional amount claimed by the employer as a tip credit, which cannot exceed $5.12 (the difference between the minimum required cash wage of $2.13 and the current minimum wage of $7.25);

3) that the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;

4) that all tips received by the tipped employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and

5) that the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.

The employer may provide oral or written notice to its tipped employees informing them of items 1-5 above. An employer who fails to provide the required information cannot use the section 3(m) tip credit and therefore must pay the tipped employee at least $7.25 per hour in wages and allow the tipped employee to keep all tips received.

Employers electing to use the tip credit provision must be able to show that tipped employees receive at least the minimum wage when direct (or cash) wages and the tip credit amount are combined. If an employee’s tips combined with the employer’s direct (or cash) wages of at least $2.13 per hour do not equal the minimum hourly wage of $7.25 per hour, the employer must make up the difference.

Retention of Tips: A tip is the sole property of the tipped employee regardless of whether the employer takes a tip credit. [1] The FLSA prohibits any arrangement between the employer and the tipped employee whereby any part of the tip received becomes the property of the employer. For example, even where a tipped employee receives at least $7.25 per hour in wages directly from the employer, the employee may not be required to turn over his or her tips to the employer.

Tip Pooling: As noted above, the requirement that an employee must retain all tips does not preclude a valid tip pooling or sharing arrangement among employees who customarily and regularly receive tips. The FLSA does not impose a maximum contribution amount or percentage on valid mandatory tip pools. The employer, however, must notify tipped employees of any required tip pool contribution amount, may only take a tip credit for the amount of tips each tipped employee ultimately receives, and may not retain any of the employees’ tips for any other purpose.

Dual Jobs: When an employee is employed by one employer in both a tipped and a non-tipped occupation, such as an employee employed both as a maintenance person and a waitperson, the tip credit is available only for the hours spent by the employee in the tipped occupation. The FLSA permits an employer to take the tip credit for some time that the tipped employee spends in duties related to the tipped occupation, even though such duties are not by themselves directed toward producing tips. For example, a waitperson who spends some time cleaning and setting tables, making coffee, and occasionally washing dishes or glasses is considered to be engaged in a tipped occupation even though these duties are not tip producing. However, where a tipped employee spends a substantial amount of time (in excess of 20 percent in the workweek) performing related duties, no tip credit may be taken for the time spent in such duties. .

Service Charges: A compulsory charge for service, for example, 15 percent of the bill, is not a tip. Such charges are part of the employer’s gross receipts. Sums distributed to employees from service charges cannot be counted as tips received, but may be used to satisfy the employer’sminimum wage and overtime obligations under the FLSA. If an employee receives tips in addition to the compulsory service charge, those tips may be considered in determining whether the employee is a tipped employee and in the application of the tip credit.

Credit Cards: Where tips are charged on a credit card and the employer must pay the credit card company a percentage on each sale, the employer may pay the employee the tip, less that percentage. For example, where a credit card company charges an employer 3 percent on all sales charged to its credit service, the employer may pay the tipped employee 97 percent of the tips without violating the FLSA. However, this charge on the tip may not reduce the employee’s wage below the required minimum wage. The amount due the employee must be paid no later than the regular pay day and may not be held while the employer is awaiting reimbursement from the credit card company.

Youth Minimum Wage: The 1996 Amendments to the FLSA allow employers to pay a youth minimum wage of not less than $4.25 per hour to employees who are under 20 years of age during the first 90 consecutive calendar days after initial employment by their employer. The law contains certain protections for employees that prohibit employers from displacing any employee in order to hire someone at the youth minimum wage.

Typical Problems

Minimum Wage Problems:

  • Where an employee does not receive sufficient tips to make up the difference between the direct (or cash) wage payment (which must be at least $2.13 per hour) and the minimum wage, the employer must make up the difference.
  • Where an employee receives tips only and is paid no cash wage, the full minimum wage is owed.
  • Where deductions for walk-outs, breakage, or cash register shortages reduce the employee’s wages below the minimum wage, such deductions are illegal. When an employer claims an FLSA 3(m) tip credit, the tipped employee is considered to have been paid only the minimum wage for all non-overtime hours worked in a tipped occupation and the employer may not take deductions for walkouts, cash register shortages, breakage, cost of uniforms, etc., because any such deduction would reduce the tipped employee’s wages below the minimum wage.
  • Where a tipped employee is required to contribute to a tip pool that includes employees who do not customarily and regularly receive tips, the employee is owed the full $7.25 minimum wage and reimbursement of the amount of tips that were improperly utilized by the employer.

Overtime Problems:

  • Where the employer takes the tip credit, overtime is calculated on the full minimum wage, not the lower direct (or cash) wage payment. The employer may not take a larger FLSA 3(m) tip credit for an overtime hour than for a straight time hour. Under certain circumstances, an employer may be able to claim an additional overtime tip credit against its overtime obligations.
  • Where overtime is not paid based on the regular rate including all service charges, commissions, bonuses, and other remuneration.

Where to Obtain Additional Information

For additional information, visit our Wage and Hour Division Website:http://www.wagehour.dol.gov and/or call our toll-free information and helpline, available 8 a.m. to 5 p.m. in your time zone, 1-866-4USWAGE (1-866-487-9243).

This publication is for general information and is not to be considered in the same light as official statements of position contained in the regulations.


[1] WHD will not enforce the Department’s regulations on the retention of employees’ tips with respect to any employee who is paid a cash wage of not less than the full Fair Labor Standards Act (FLSA) minimum wage ($7.25) and for whom their employer does not take an FLSA section 3(m) tip credit.