Paying employees according to federal, state, or local minimum wage law is critical if you want to avoid breaking labor laws. However, employers in some industries can pay tipped employees a lower minimum wage and remain compliant. This is known as the tipped minimum wage.
Like the regular minimum wage rate, the tipped wage can vary depending on what state your business is in. Do you know the federal tipped minimum wage? How about the minimum wage for tipped employees by state?
If you don’t know federal and state tipped wage rates, use the maps and charts below to get ahead.
What is the federal minimum wage for tipped employees?
The federal minimum wage is currently $7.25 per hour. This is the lowest amount you can pay employees per hour of work. However, the Fair Labor Standards Act (FLSA) makes an exception. Employers in certain industries can pay eligible employees (e.g., waiters) who receive tips a lower minimum wage than non-tipped workers.
Under federal law, tipped employees are those who regularly receive more than $30 per month in tips.
To pay tipped employees at a lower hourly rate, employers can claim a tip credit toward the federal minimum wage.
A tip credit reduces the hourly minimum wage for qualifying employees by the amount of the credit. The maximum tip credit employers can claim is $5.12 per hour.
To sum it up, the federal minimum wage for tipped employees is $2.13 per hour ($7.25 – $5.12 = $2.13). The minimum wage for tipped employees is known as the minimum cash wage.
If you want to pay your employees the tipped wage, you must let them know the amount you are claiming as a tip credit and their hourly rate.
Failing to notify your employees about the tip credit and minimum cash wage means you must pay them the regular minimum wage and let them keep their tips.
Tipped minimum wage by state
Not all states follow the federal tipped minimum wage rate.
Some states do not let employers pay a tipped wage rate. Other states require that employers pay a state-mandated tipped minimum wage that is higher than the federal rate.
What does your state require?
States that follow the federal tipped minimum wage
When it comes to the tipped wage, these states follow the federal rate of $2.13 per hour:
- New Jersey
- New Mexico
- North Carolina
- South Carolina
If your business is located in one of the above states, you can pay employees using the federal tipped wage.
States that do not allow a separate minimum cash wage
Again, not all states let employers pay employees a tipped minimum wage. The following states require that employers pay employees at least the regular state minimum wage in addition to the employee’s collected tips:
If your business is located in one of the above states, do not try to pay employees the minimum cash wage.
States that set a higher tipped wage than the federal rate
The following states set their own tipped minimum wage that is above the federal rate of $2.13:
- New Hampshire
- New York
- North Dakota
- Rhode Island
- South Dakota
- West Virginia
Although you can pay employees a minimum cash wage in the above states, you cannot use the federal tipped wage of $2.13. You must pay the state-mandated tipped minimum wage.
Tipped workers minimum wage by state: Chart
Want to know how much you must pay tipped employees? Use the chart below to find out. And, keep in mind that states with an * by their name do not allow a separate minimum wage for tipped employees.
|State||Tipped Minimum Wage|
|California*||$11.00 (employers with 25 or fewer employees)
$12.00 (employers with 26 or more employees)
|Connecticut||$6.38 (employees who work in a hotel or restaurant)
$8.23 (bartenders who receive tips)
|District of Columbia (D.C.)||$3.89|
|Minnesota*||$8.04 (small employers whose gross revenue is less than $500,000)
$9.86 (large employers whose gross revenue is not less than $500,000)
|Montana*||$4.00 (businesses not covered by the FLSA whose gross annual sales are $110,000 or less)
$8.50 (businesses whose gross annual sales are over $110,000)
|Nevada*||$7.25 (employees who receive health insurance)
$8.25 (employees who don’t receive health insurance)
|New York||$7.50 (tipped food service workers)
$9.25 (tipped service employees)
|Ohio||$4.30 (employers with annual gross receipts of $305,000 or more)|
|Vermont||$5.39 (hotel, motel, tourism, or restaurant employees who receive more than $120 per month in tips)|
Also, be sure you know your state’s definition of who is considered a “tipped employee.”
Although many states follow the federal definition (employees who earn more than $30 in tips), some states set a different minimum.
For example, workers are considered tipped employees if they make more than $20 in states like Massachusetts, Kentucky, and North Carolina.
Your employees don’t earn enough tips. Now what?
The point of a tip credit is for employees’ combined minimum cash wage and tips to be more than the regular minimum wage.
If an employee’s tipped minimum wage and tips are not enough to reach the minimum wage, you must make up the difference.
Need an easier way to run payroll for tipped, non-tipped employees, or both? With Patriot’s payroll, you can add tips to each employee’s paycheck and withhold taxes with ease. Start your self-guided demo now!
This is not intended as legal advice; for more information, please click here.