Paying tipped employees correctly is one of the most-audited areas of wage law. This tipped employee minimum wage and overtime calculator checks whether a server’s cash wage plus tips meets the federal $7.25 minimum, how much tip credit you may claim, and how to compute tipped overtime (which is based on the full minimum wage, not the $2.13 cash wage). Enter the cash wage, tips, and hours below to verify compliance and see any required makeup pay.
Under the federal Fair Labor Standards Act (FLSA), an employer may pay a tipped employee a cash wage as low as $2.13/hour and count tips toward the rest of the minimum wage. The difference is the tip credit, capped at $5.12/hour ($7.25 − $2.13). Two hard rules apply:
| Component | Federal amount |
|---|---|
| Full minimum wage | $7.25/hr |
| Minimum cash wage | $2.13/hr |
| Maximum tip credit | $5.12/hr |
Important: many states require a higher cash wage, and some (California, Nevada, Oregon, Washington, and others) ban the tip credit entirely — there, tipped workers get the full state minimum plus tips.
Overtime for tipped employees is not 1.5 × $2.13. The FLSA requires overtime at 1.5 × the full minimum wage ($7.25), and the tip credit is then subtracted. So the correct tipped overtime cash rate is:
($7.25 × 1.5) − $5.12 tip credit = $10.88 − $5.12 = $5.76/hour
Employers who instead pay $2.13 × 1.5 = $3.20 for OT hours underpay by $2.56 per overtime hour — a classic, expensive violation. The calculator applies the correct $5.76 federal OT cash rate automatically (scaled to your inputs).
A server is paid the $2.13 cash wage, earns $420 in tips, and works 45 hours (40 regular + 5 OT) under federal rules:
If tips had been low — say $150 — total cash + tips would be $264, below the $344.40 floor, and the employer would owe $80.40 of makeup pay.
Two more compliance traps:
Violating either rule can forfeit the entire tip credit and trigger back-wage liability for all affected weeks, so document duties and pooling carefully.
Always apply the most generous of federal, state, and local law. Examples: California, Alaska, Minnesota, Montana, Nevada, Oregon, and Washington require the full state minimum cash wage with no tip credit; many other states set a tipped cash wage above $2.13. Enter your state’s minimum wage and cash wage into the calculator to test compliance where you operate. For non-tipped overtime, see our overtime pay calculator.
Overtime is 1.5 times the full minimum wage, then the tip credit is subtracted — not 1.5 times the $2.13 cash wage. Federally that is ($7.25 × 1.5) − $5.12 = $5.76 per overtime hour in cash. Paying $2.13 × 1.5 underpays tipped overtime and is a frequent FLSA violation.
The tip credit is the amount of tips an employer counts toward the minimum wage. Federally it is capped at $5.12/hour — the gap between the $2.13 minimum cash wage and the $7.25 minimum wage. The credit can never exceed the tips actually earned, and cash plus tips must reach $7.25/hour each week.
If an employee's cash wage plus tips falls below the applicable minimum wage for the workweek, the employer must pay the difference as makeup pay. The tip credit only works when tips are large enough to bridge the gap; otherwise the employer covers the shortfall to reach the full minimum.
No. Employers, managers, and supervisors may never keep employees' tips or share in a tip pool, regardless of whether a tip credit is taken. When the employer claims a tip credit, only customarily and regularly tipped employees may participate in the pool.
No. Several states — including California, Nevada, Oregon, Washington, Alaska, Minnesota, and Montana — prohibit the tip credit and require the full state minimum wage plus tips. Many other states set a tipped cash wage higher than $2.13. Employers must follow the most generous of federal, state, and local law.