Overtime for Tipped Employees: How It Works

Tipped employees are entitled to overtime just like any other non-exempt worker. But the tip credit creates a common source of wage violations: employers who calculate overtime on the cash wage ($2.13/hour) instead of the full minimum wage. That is illegal.

The correct overtime calculation

When an employer uses the federal tip credit, the overtime rate for a tipped employee is 1.5 × the full federal minimum wage ($7.25), minus the tip credit ($5.12). The result is $10.88 - $5.12 = $5.76 per hour for the overtime hours — not $2.13 × 1.5 = $3.20.

Why the full minimum wage is the base

The tip credit is a mechanism that lets tips satisfy part of the minimum wage obligation. Overtime is computed on the employee's actual regular rate, and for a tipped employee the full minimum wage is the floor, not the cash wage. The DOL has consistently enforced this interpretation and courts have upheld it.

State rules can raise the floor further

Seven states do not allow the tip credit — workers receive the full state minimum wage in cash. In those states, the overtime regular rate is the state minimum or the employee's actual cash wage (whichever is higher), and there is no tip credit to subtract. In California, which has daily overtime, tipped employees can earn daily overtime even in weeks under 40 hours.

Watch for dual jobs

If a tipped employee spends more than 20% of their time in a workweek doing non-tipped work (cleaning, prep, stocking), the tip credit cannot apply to those hours. The DOL's '80/20' rule means the employer owes the full minimum wage for the non-tipped portion. Use the tipped-wage calculator to check compliance for split-duty employees.