Tipped Minimum Wage & the Tip Credit Explained
How the tip credit works, the $2.13 federal cash wage, and the seven states that ban the tip credit and require the full minimum wage before tips.
Tipped workers are covered by the minimum wage too, but the rules let employers count tips toward it. Understanding the tip credit helps you check you're being paid legally.
The federal tip credit
Federally, an employer can pay a cash wage as low as $2.13/hour and take a "tip credit" of up to $5.12 for the tips you earn. But your cash wage plus tips must reach at least $7.25 for every hour. If your tips fall short, the employer must make up the difference.
States that ban the tip credit
Seven states do not allow any tip credit: California, Oregon, Washington, Nevada, Montana, Minnesota and Alaska. There, you must be paid the full state minimum wage in cash, and tips are on top. Other states set their own tipped cash wage between $2.13 and the full minimum.
Check your pay
Enter your cash wage, hours and tips into the tipped-wage calculator. It works out your effective hourly rate and flags any make-up pay your employer owes to reach the minimum wage.