Tipped Employees & Minimum Wage Laws: Know Your Rights (Expanded Definition)

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Understanding your rights as a tipped employee is crucial in navigating minimum wage laws and ensuring you receive fair compensation for your work. This guide will help you grasp the intricacies of tipped wage regulations and highlight the importance of seeking legal assistance from an attorney near you if you encounter wage violations.

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This comprehensive guide on tipped employees and minimum wage laws outlines your rights and protections under federal and state regulations. Learn how to navigate wage issues, including tip credits and overtime pay, and discover how to find an attorney near you for legal assistance in case of wage theft or violations.

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Minimum Wage Laws by State: Are You Being Paid Fairly? (Expanded Definition)

Tipped Employees & Minimum Wage Laws: Know Your Rights (Expanded Definition)

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Wage & Hour Laws – Understanding Your Paycheck

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Mar 29, 2025 04:27 PM

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Tipped Employees & Minimum Wage Laws: Know Your Rights

If you work in the service industry, chances are you’re considered a tipped employee—someone who regularly earns tips as part of your income. But do you know how minimum wage laws apply to tipped workers? The truth is, employers often misunderstand or misapply these laws, and workers lose out on hard-earned wages.

This guide provides a clear overview of how minimum wage laws affect tipped employees, what your employer can and cannot do, and how to protect your pay.

💡 For every post in this series, scroll down to “Related Posts.”

Who Is Considered a Tipped Employee?

Under the Fair Labor Standards Act (FLSA), a tipped employee is someone who regularly receives more than $30 per month in tips.

Common tipped professions include:

Servers and bartenders

Baristas and bussers

Hotel staff (bellhops, valets, housekeepers)

Nail technicians and hairstylists

If you meet the $30 threshold, you fall under the federal tipped minimum wage rules, but your state may have its own protections.

What Is the Tipped Minimum Wage?

Under federal law, employers are allowed to pay tipped employees a reduced base wage of $2.13 per hour, as long as tips bring the total hourly rate up to at least $7.25 per hour (the federal minimum wage).

This is called a tip credit—employers claim credit for your tips toward meeting minimum wage obligations.

If your tips + base wage don’t add up to $7.25/hour, your employer must make up the difference.

What If You Work in a State with a Higher Minimum Wage?

Many states have higher minimum wages and different rules for tipped employees. Some don’t allow tip credits at all, requiring full minimum wage pay before tips.

Examples of State Laws (2025):

California: Employers must pay $16.50/hour, and no tip credit is allowed—tips are on top of that.

Oregon: Employers must pay $14.70/hour—no tip credit allowed.

New York City: Tipped minimum wage is $16.50, but tip credit is permitted in some industries.

Minnesota: No tip credit is allowed; full minimum wage must be paid.

Texas: Follows federal rules—$2.13/hour base wage plus tips.

Check your state’s wage laws carefully—some cities even have higher local rates.

How Tip Credits Work

Let’s break it down with an example:

You’re a server in Texas (which allows tip credits). You’re paid $2.13/hour and work 40 hours/week.

Your employer must ensure you make at least:

$7.25 x 40 hours = $290/week

If your tips total $250 for the week:

$2.13/hour wage = $85.20

$85.20 + $250 = $335.20

You’re above minimum wage—no problem.

But if you only make $180 in tips, your total income = $85.20 + $180 = $265.20—which is below minimum wage. Your employer must add $24.80 to meet legal requirements.

Illegal Practices You Should Watch Out For

Many employers violate tip laws—intentionally or not. Here’s what to watch for:

1. Not Making Up the Difference

If tips don’t cover the gap between the base wage and minimum wage, employers must pay the difference. Failing to do so is wage theft.

2. Tip Pooling with Non-Tipped Staff

Tip pooling is legal—but only among employees who customarily receive tips. Employers cannot include managers, cooks, or dishwashers in tip pools.

3. Deducting Tips for Walkouts or Breakages

Employers cannot deduct tips to cover losses from walkouts, broken dishes, or register shortages. These costs are the employer’s responsibility.

4. Taking a Cut of Your Tips

Employers cannot take part of your tips under any circumstance. All tips are the property of the employee—not the business.

5. Failing to Provide Wage Statements

Even if you’re paid in cash, you’re entitled to a wage statement that includes hours worked, tips earned (if tracked), and deductions (if any).

Tipped Employees and Overtime Pay

Tipped employees are also entitled to overtime pay—but it must be calculated using your full minimum wage, not the reduced tipped wage.

Example:

If you work over 40 hours in a week, your employer must pay you 1.5x your regular rate, using the full minimum wage rate, not $2.13/hour.

That means:

$7.25 x 1.5 = $10.88/hour for overtime (minimum), even if your base wage is $2.13.

Some states mandate higher overtime rates, especially if their minimum wage is higher than the federal rate.

What If You’re Paid Only in Tips or Below Minimum Wage?

That’s a clear violation of the law. Employers cannot pay you only in tips—they must pay at least the required base wage and ensure your tips bring you up to minimum wage (unless your state requires full wage before tips).

If this is happening, it’s time to take action.

What to Do If Your Employer Violates Tip or Wage Laws

Here’s how to protect your rights:

Step 1: Keep Records

Document your hours worked.

Track your tips received.

Compare your total income to your state’s minimum wage.

Step 2: Ask Your Employer in Writing

If you believe your employer is underpaying or misapplying tip credit rules, raise the issue in writing and keep a copy.

Step 3: File a Wage Complaint

File with the U.S. Department of Labor’s Wage and Hour Division

Or report the issue to your state labor department

Step 4: Consult an Employment Lawyer

If you’re facing wage theft, an employment lawyer near you can help you file a formal complaint or even pursue a lawsuit for back wages and damages.

Final Thoughts: Know Your Rights, Protect Your Pay

Tipped workers often face complex and unfair wage practices. But knowing the law gives you the power to fight back. Whether your employer is illegally claiming tip credits, stealing tips, or underpaying overtime, you can hold them accountable.

At ReferU.AI, we connect employees with top-rated employment lawyers near you. Our AI-powered platform matches you with attorneys who specialize in wage and hour violations—so you can get expert legal help fast.

Think your employer is underpaying you? Get legal advice today.

Tipped Employees & Minimum Wage Laws: Know Your Rights (Expanded Definition)