If employees regularly receive tips, complying with minimum wage for servers can be a complicated business—especially when calculating overtime. The reality is the rules are different based on where you operate within the country. If you’re running payroll for multiple restaurants or other hospitality businesses you need to be informed of tipped minimum wage laws wherever you are.
What is a Tipped Employee?
By federal law, a tipped worker is anyone who regularly receives at least $30 per month in tips. However, Arkansas, Hawaii, Illinois, Massachusetts, Kansas, North Carolina and Texas set a lower requirement of $20 per month. Three states have a minimum base wage higher than federal standards: South Dakota at $35, Vermont at $120, and Connecticut with a minimum of $10 weekly for full-time employees or $2 daily for part-time hotel and restaurant employees.
Alabama, Georgia, Louisiana, Mississippi, South Carolina, and Tennessee have no state laws regarding minimum wage for tipped employees.
How Do Different States Calculate Tipped Minimum Wage?
The tipped minimum wage rate is the lowest amount an employee can earn per hour. This is made up of a basic cash wage (which must be paid by the employer) plus a tip credit (which an employer can claim). Federal law sets the minimum base wage at $2.13 per hour, but many states mandate a higher level. In some states, employers must pay tipped employees the full state minimum wage before tips.
To help your organization stay aware of the latest labor laws, Paycor has created a breakdown of tipped minimum wage by state for 2022.
|State||Minimum Wage Rate||Maximum Tip Credit||Tipped Minimum Wage (Total)|
¹ Small businesses (with fewer than 26 employees) have a lower minimum wage level of $14 per hour. For local minimum wage regulations, read our guide to California Minimum Wage
² Hotel and restaurant worker only. Bartenders have a higher minimum cash wage ($8.23) and so a lower tip credit ($4.77)
³ Tip Credit permissible if the combined amount an employee receives from the employer and tips is at least $7.00 more than the minimum wage.
⁴ $8.42 for small employers (with gross revenue of less than $500,000)
⁵ $4.00 for businesses not covered by FLSA with gross annual sales of $110,000 or less
⁶ Minimum wage level is $8.75 if employees receive health insurance benefits
⁷ For tipped food service workers. For tipped service employees, the basic cash wage is $11.00 and maximum tip credit $2.20
⁸ Applies only to employers with gross sales of $342,000 or higher
⁹ Basic cash wage is $2.00 for employers with gross annual sales of $100,000 or less and fewer than 10 full time employees at any one location
¹⁰ State minimum wage only applies to state agencies and private companies with 6+ employees
Paycor is not a legal, tax, benefit, accounting or investment advisor. All communication from Paycor should be confirmed by your company’s legal, tax, benefit, accounting or investment advisor before making any decisions.
Should we have a tipped minimum wage?
You’ll find numerous arguments on both sides of the issue of eliminating tipped or subminimum wage. Many small business owners say that it will be financially disastrous to their companies; however, Center for American Progress shows that enacting a fair minimum wage for all employees will help reduce poverty and improve the economy.
What is the hourly wage for tipped employees?
Federal law sets the minimum basic cash wage at $2.13 per hour, but many states mandate a higher level.
What is tip credit against minimum wage?
Restaurant employees who receive tips are entitled to a wage of at least $2.13 per hour, and more if their tips don’t equal at least federal minimum wage. Employers can claim a tip credit of up to $5.12 against federal minimum wage.
How Paycor Helps
Paycor can help you stay compliant, wherever you are. Our intuitive and easy-to-use payroll software makes inaccuracies easy to catch and the entire process as effortless as possible. To learn more about how Paycor can help you stay compliant, save time, and make better business decisions, talk to a member of our team.