You must pay a tipped worker at least the minimum cash wage.

With a $7.25 federal minimum wage and the $5.18 maximum federal tip credit, the federal minimum cash wage is $2.13.įLSA tip law demands the following employers when paying tipped employees: The Fair Labor Standards Act (FLSA) sets the federal minimum wage and federal maximum tip credit, which states defer to only when there’s either no state minimum wage or it’s lower than the federal minimum wage.

When a tipped employee’s earnings don’t reach the applicable minimum wage, the employer must step in to cover the difference. Tipped workers’ pay comprises employer-paid wages and customer-paid tips, which should add up to at least the highest applicable minimum wage, whether it be the city, state, or federal minimum wage. Minimum Cash Wage = Minimum Wage – Maximum Tip Creditįor example, New Jersey has an $11-per-hour minimum wage and a $7.87 tip credit, so employers must pay tipped workers at least $3.13 per hour ($11 minimum wage – $7.87 tip credit). A tip credit sets the state minimum wage for tipped workers, called a minimum cash wage. In most states, tipped workers aren’t subject to the same minimum wage as non-tipped workers. Since a share of tipped employees’ earnings comes directly from customers, some states institute a tip credit to reduce employer-paid wages. Servers earn more than half of their wages from tips, according to a National Employment Law Project report.

Tips make up a significant portion of the income of hospitality industry workers. Follow our guide to calculating your employees’ tip credits. The tip credit reduces a tipped employee’s minimum wage to account for wages from customer-paid tips.

Credit tip of the day