What You Need to Know About Minimum Wages for Workers Who Receive Tips
The minimum wage for tipped workers is lower than the regular minimum wage, but that doesn’t mean that employers can get away with paying tipped workers less than regular staff. If you’re a tipped worker, it’s important to understand state and federal law regarding employees who receive tips as a regular part of their compensation. How much you earn will depend on where you live and what the laws are in your state.
The federal government sets a required minimum wage for workers who receive tips on a regular basis and defines tipped employees as those who receive at least $30 a month in tips. However, some states have a higher minimum wage than the federal rate, and in that case, the higher rate applies.
If you're an employee who receives tips, even though your hourly rate may be low, your total hourly rate must reach the designated minimum wage. That amount varies based on your location. For example, the federal minimum wage is $7.25 per hour. That means that in every state, your combined cash and tip rate must equal (or exceed) that amount.
In Florida, for example, for the calendar year 2017, the total combined rate is $8.10. The total hourly wage you will earn is the minimum wage for your state.
Other states, like Alaska, require that tipped workers be paid the full state minimum wage ($9.80 in 2017) before tips.
Federal Minimum Wage for Tipped Workers
The Fair Labor Standards Act mandates that employees who earn $30 or more per month in tips be paid at least $2.13 in wages. This means that if you’re a waiter, bartender, or other service employee who receives tips, your employer is only required to pay you $2.13 per hour in wages.
However, the total amount earned ($2.13/hour plus tips) must equal the federal minimum wage.
This is known as the tip credit provision or tip credit allowance. This provision allows your employer to pay you less than the minimum wage because you are receiving tips on a regular basis.
The exception to the rule applies to federal contract workers who receive tips. These federal employees must be paid a cash wage of at least $6.80 per hour. If their total pay does not reach $10.20 per hour, the minimum for federal contract workers, the employer must raise their wage to make up the difference. (Note that these rates were set by executive order during the Obama administration, applied from January 1, 2017 to December 31, 2017. They may be subject to change.)
State-by-State Minimum Wage for Tipped Workers
Some states require employers to pay their workers more than the federal tipped minimum wage. For example, in 2017, the Arizona minimum cash wage for tipped workers was $7.00 per hour and in the state of Massachusetts it was $3.75 per hour.
In both cases, the combined cash and tip state minimum wages were higher – $11 per hour in Massachusetts and $10 per hour in Arizona.
All employers must adhere to the law in their state when paying employees.
If you're not sure what you should be paid, check this chart of state minimum wage laws for tipped workers. If there are no laws stipulating a minimum wage law in the state where you work, the federal minimum wage is applicable.
Calculating Total Hourly Earnings With Tip Credits
The federal minimum tip wage is combined with a tip credit to reach the federal minimum wage. For example, the maximum tip credit is currently $5.12 per hour. If you add the $5.12 per hour plus the minimum tipped wage of $2.13, you reach the federal minimum wage of $7.25 an hour.
While the federal minimum wage is guaranteed, tipped workers receive some of this income from employers and some from tips. Workers always earn more if the tips received bring their earnings above the minimum wage.
In a state with a higher minimum wage, the total will reach the maximum minimum wage for that location.
Let's use Colorado as an example. In Colorado, the tip credit is $6.28; add that to the tipped worker minimum wage of $3.02, and you get the state minimum wage of $9.30.
Again, the hourly earnings can be higher based on the amount of tips the worker earns. But if you’re a tipped worker, it’s in your best interests to know the minimum your employer is allowed to pay you, under state and federal law.