The FLSA lets employers pay tipped employees a cash wage as low as $2.13 per hour, provided tips bring total compensation to at least $7.25. Enter hours worked, cash wage, and tips — the calculator checks federal minimum compliance and flags any shortfall. If your state sets a higher minimum, enter that figure. This is an estimate, not legal advice — confirm with your CPA or state agency.
Under the Fair Labor Standards Act, employers may take a tip credit of up to $5.12 per hour, reducing the minimum cash wage to $2.13 per hour for tipped employees. The condition: tips received must bring the employee's total hourly compensation to at least the full federal minimum wage of $7.25. If tips fall short in any workweek, the employer must make up the difference out of pocket.
The tip credit is not automatic — employers must inform tipped employees of the tip credit provisions before applying it. Tipped employees are generally defined as workers who customarily and regularly receive more than $30 per month in tips. This calculator checks compliance for each pay period you enter, showing whether total compensation meets the floor or whether a shortfall exists that you owe.
Federal law sets the floor, but many states have their own minimum wage and tip credit rules. Some states require a higher cash wage than the federal $2.13, and several states do not permit any tip credit at all — meaning employers must pay the full state minimum wage before tips. Because state rules vary and change frequently, this calculator does not list state-specific rates. Instead, enter your state's required cash wage if it exceeds the federal level.
If you operate in a state with no tip credit, the analysis shifts from compliance checking to understanding your total labor cost per tipped employee. Pair this tool with the no-tax-on-tips calculator to estimate how recent federal income tax deduction changes may affect your employees' take-home pay and your withholding calculations.
Taking the tip credit does not reduce your payroll tax obligations. You owe FICA taxes — Social Security at 6.2% and Medicare at 1.45% — on the full amount of each tipped employee's wages plus reported tips, not just the cash wage. Tips must be reported, and you are responsible for withholding income tax and the employee share of FICA from wages and reported tips.
If reported tips are insufficient to cover withholding, the employee owes the balance at filing time. Additionally, the FLSA requires that employers do not use tips for any purpose other than as a credit against the minimum wage obligation or in a valid tip pool. Mismanaging tip pools or requiring tip-outs to non-tipped employees can void your right to take the tip credit entirely. Track tips carefully and review your approach with your CPA.
The shortfall calculation is simple: multiply $7.25 by total hours worked to get the minimum total compensation required. Subtract the actual cash wages paid and the tips received. If the result is positive, you owe that amount to the employee as additional wages. This calculation must be done on a workweek basis — you cannot average good-tip weeks against bad-tip weeks.
The calculator does this automatically for the inputs you provide. Wage and hour violations carry back-pay liability plus potential liquidated damages equal to the unpaid amount, effectively doubling your exposure. Department of Labor investigations can also result in civil money penalties. Staying compliant costs less than resolving violations. For restaurants with many tipped workers, also review your total labor cost percentage to keep the full picture in view.
The maximum federal tip credit is $5.12 per hour. This is the difference between the full minimum wage of $7.25 and the minimum cash wage of $2.13 that employers may pay tipped employees under the FLSA.
Yes. If an employee's tips plus cash wage do not reach $7.25 per hour in any workweek, the employer must pay the shortfall. You cannot average across multiple weeks to offset a bad week.
Under the FLSA, tipped employees are those who customarily and regularly receive more than $30 per month in tips. Common examples include servers, bartenders, and valets.
It depends. Some states allow the full federal tip credit, others set a higher minimum cash wage, and several require the full state minimum with no tip credit at all. Check your state labor department for current rules.