CashoutGlossary / Tip credit
Tip credit
The part of the minimum wage an employer may cover with your tips. Under federal law it's up to $5.12 an hour, with a cash wage of at least $2.13.
The tip credit lets an employer count part of your tips toward its minimum wage duty. Under federal law the employer must pay a cash wage of at least $2.13 an hour, and the tip credit can be no more than $5.12 an hour, the gap up to the $7.25 federal minimum. If your cash wage plus tips doesn't reach the full minimum wage in a workweek, the employer must make up the difference.
Before taking a tip credit, the employer has to tell you about it, including the cash wage, the amount of the credit, that the credit can't be more than the tips you actually get, and that you keep your tips except in a valid tip pool. An employer that skips this notice can't take the credit.
States set their own rules, and the one more protective of workers wins. Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington allow no tip credit, so tipped workers there get the full state minimum before tips. Many other states require a cash wage above $2.13, such as Pennsylvania at $2.83. Look up your state on the tipped minimum wage by state page.
A common mistake is assuming a slow week is your loss. The check is per workweek, so if tips plus the cash wage fall short of the minimum for that week, the employer owes the gap. The credit also applies only to hours in a tipped job, not to time in a separate untipped job.
Related terms
Tipped minimum wage · Direct wage · Tipped employee · Side work · Fair Labor Standards Act (FLSA)
