If your business employs servers, bartenders, or other tipped workers, it’s important to understand how tipped wages work and how the rules change from state to state.
This guide covers the basics, walks through 2026 wage rates, and highlights what employers need to watch to stay compliant.
Here’s what we’ll cover:
- Who qualifies as a tipped employee
- How tip credit impacts hourly pay
- Which states allow tip credit and which don’t
- Wage rules for common roles like servers and delivery drivers
- What the IRS and Department of Labor expect employers to do
- Common mistakes that lead to wage violations
Whether you run payroll in one state or several, this resource is designed to help you stay compliant, pay employees correctly, and avoid expensive surprises.
Table of Contents
- What Is the Tipped Minimum Wage?
- How Tipped Wages Work (With Examples)
- State-by-State Tipped Minimum Wage (2026)
- States That Pay Full Minimum Wage (No Tip Credit)
- States That Use Tip Credit Above Federal
- States That Follow the Federal $2.13 Minimum
- Tipped Wage Laws by Role
- Tip Credit Basics
- Tip Pooling Rules
- Common Mistakes to Avoid
- Frequently Asked Questions
- How TimeClick Helps
- Final Thoughts
What Is the Tipped Minimum Wage?
Under federal law, a tipped employee is someone who regularly earns at least $30 per month in tips. This typically includes roles like servers, bartenders, and delivery drivers.
As of 2026, the federal tipped minimum wage remains $2.13 per hour. Employers can pay this lower base rate by applying a tip credit, which assumes tips will make up the difference needed to reach the federal minimum wage of $7.25 per hour.
If an employee’s tips fall short, the employer is required to cover the difference. This isn’t optional. It’s a federal requirement.
How Tipped Wages Work (With Examples)
Here’s a simple example to show how tipped wages work in practice. Lucy is a restaurant server who earns the federal tipped minimum wage of $2.13 per hour. She works a five-hour shift and earns $10 in tips.
This is how her pay adds up:
Base pay: $2.13 × 5 hours = $10.65
Tips earned: $10.00
Total earnings: $20.65
Now compare that to what she’s required to earn under federal minimum wage:
Federal minimum wage: $7.25 × 5 hours = $36.25
Lucy’s total pay falls $15.60 short. In this case, the employer must make up the difference so her total earnings reach $36.25 for the shift.
State-by-State Tipped Minimum Wage (2026)
States That Pay Full Minimum Wage (No Tip Credit)
In these states, tipped employees must be paid the full state minimum wage; tips are extra and can’t count toward base pay.
| State | Minimum Wage (2026) | Tip Credit Allowed |
|---|---|---|
| Alaska | $13.00 (Jan 1–Jun 30, 2026) / $14.00 (effective July 1, 2026) | No |
| California | $16.90 | No |
| Minnesota | $11.41 | No |
| Montana | $10.85 | No |
| Nevada | $12.00 | No |
| Oregon | $15.05 standard / $16.30 metro / $14.05 rural | No |
| Washington | $17.13 | No |
States That Use Tip Credit Above Federal
These states allow employers to use a tip credit, but their required cash wage for tipped employees is higher than the federal $2.13. Even with a tip credit, total pay must still meet the full state minimum wage.
| State | Cash Wage (Tipped) | Tip Credit | Total Minimum Wage |
|---|---|---|---|
| Arizona | $12.15 | $3.00 | $15.15 |
| Colorado | $12.14 | $3.02 | $15.16 |
| Connecticut | $6.38 (servers) / $8.23 (bartenders) | $10.56 / $8.71 | $16.94 |
| Delaware | $2.23 | $12.77 | $15.00 |
| District of Columbia | $10.00 | $7.95 (phasing out) | $17.95 |
| Florida | $10.98 | $3.02 | $14.00 |
| Hawaii | $14.75 | $1.25 | $16.00 |
| Illinois | $9.00 | $6.00 | $15.00 |
| Maine | $7.55 | $7.55 | $15.10 |
| Maryland | $3.63 | $11.37 | $15.00 |
| Massachusetts | $6.75 | $8.25 | $15.00 |
| Missouri | $7.50 | $7.50 | $15.00 |
| New Hampshire | $3.27 | $3.98 | $7.25 |
| New Jersey | $6.05 | $9.87 | $15.92 |
| New Mexico | $3.00 | $9.00 | $12.00 |
| New York (NYC / LI / Westchester) | $11.35 (food) / $14.15 (service) | $5.65 / $2.85 | $17.00 |
| New York (Rest of State) | $10.70 (food) / $13.30 (service) | $5.30 / $2.70 | $16.00 |
| Ohio | $5.50 | $5.50 | $11.00 |
| Rhode Island | $3.89 | $12.11 | $16.00 |
| South Dakota | $5.93 | $5.93 | $11.85 |
| Vermont | $7.21 | $7.21 | $14.42 |
| Virginia | $2.13 | $10.64 | $12.77 |
States That Follow the Federal $2.13 Minimum
These states stick with the federal tipped minimum wage of $2.13 per hour and allow a tip credit up to $5.12. Total pay must still reach at least $7.25 per hour.
| State | Base Wage | Tip Credit | Total Minimum Wage |
|---|---|---|---|
| Alabama | $2.13 | $5.12 | $7.25 |
| Georgia | $2.13 | $5.12 | $7.25 |
| Indiana | $2.13 | $5.12 | $7.25 |
| Kansas | $2.13 | $5.12 | $7.25 |
| Kentucky | $2.13 | $5.12 | $7.25 |
| Louisiana | $2.13 | $5.12 | $7.25 |
| Mississippi | $2.13 | $5.12 | $7.25 |
| North Carolina | $2.13 | $5.12 | $7.25 |
| Oklahoma | $2.13 | $5.12 | $7.25 |
| Pennsylvania | $2.83 | $4.42 | $7.25 |
| South Carolina | $2.13 | $5.12 | $7.25 |
| Tennessee | $2.13 | $5.12 | $7.25 |
| Texas | $2.13 | $5.12 | $7.25 |
| Utah | $2.13 | $5.12 | $7.25 |
| Wisconsin | $2.33 | $4.92 | $7.25 |
| Wyoming | $2.13 | $5.12 | $7.25 |
Tipped Wage Laws by Role
Not every job that earns tips automatically qualifies for tipped wages. Under federal law, a worker has to regularly earn at least $30 per month in tips, and some states set higher thresholds. Here’s how the rules typically apply to common roles:
- Servers and waitstaff: Usually qualify, including table servers, bussers, and in some cases hosts who share in tip pools.
- Bartenders: Almost always qualify, especially when they’re serving customers directly.
- Delivery drivers: Qualify if they consistently earn tips, but employers still have to ensure total pay meets minimum wage after job-related expenses like mileage.
- Hotel and casino staff: Roles like valets, bellhops, and some gaming floor positions often qualify, depending on how regularly they receive tips.
- Salon and spa professionals: Hair stylists, nail techs, and massage therapists often qualify when tips are a consistent part of their pay.
TIMECLICK TIP
Use job role filters in TimeClick to categorize employees automatically and help ensure payroll follows your state’s wage rules.
Tip Credit Basics
The tip credit lets employers count an employee’s tips toward meeting minimum wage. Under federal rules, you can pay as little as $2.13 per hour in direct wages as long as tips bring total pay up to at least $7.25 per hour.
To use a tip credit legally, you must:
- Make sure the employee regularly earns at least $30 per month in tips
- Tell the employee in advance that a tip credit will be applied
- Keep clear records showing that wages plus tips meet or exceed minimum wage
If tips don’t cover the gap, you’re required to make up the difference. Several states limit or ban tip credits entirely, so it’s important to check state rules instead of relying on federal law alone.
For tax purposes, tips count as income. Employees must report them, and employers must include reported tips in payroll tax calculations for Social Security and Medicare.
Tip Pooling Rules
Tip pooling, where employees share tips, is allowed under federal law, but the rules are strict.
If you use a tip credit and pay less than full minimum wage, only employees who regularly receive tips can be included in the pool. That includes servers, bartenders, and bussers, but not cooks, dishwashers, or managers.
If you pay the full minimum wage and don’t take a tip credit, you’re allowed to include back-of-house roles like cooks and dishwashers in the pool.
Managers and supervisors can never keep any portion of tips, no matter how your policy is set up. Employers are also prohibited from taking tips for themselves.
Many states require tip pooling rules to be documented in writing. Before creating or changing a policy, always review state and local requirements.
Common Mistakes to Avoid
If you employ tipped workers, the details matter. Small oversights can turn into serious compliance issues fast. These are the mistakes employers run into most often:
- Applying tipped wages to the wrong employees. To qualify under federal law, workers must regularly earn at least $30 per month in tips.
- Not covering wage shortfalls. If tips plus base pay don’t reach minimum wage, you have to make up the difference every pay period.
- Misclassifying roles. Jobs like hosts or food runners may not qualify as tipped employees in certain states.
- Skipping required notice. Federal law requires you to notify employees before using a tip credit, and some states require written confirmation.
- Including ineligible staff in tip pools. Managers and non-tipped employees can’t participate if you’re using a tip credit.
- Using one policy everywhere. Tip and wage rules vary by state, and what’s allowed in one location may be illegal in another.
- Poor recordkeeping. Without clear records of hours, tips, and pay, it’s hard to prove compliance during an audit even if you followed the rules.
TIMECLICK TIP
With TimeClick's time tracking software, you can track hours, tips, and wages in one place. Spot wage gaps early and fix them before payroll becomes a compliance issue.
Frequently Asked Questions
These are some of the most common questions employers ask about tipped wage laws.
Why do servers make $2.13 an hour?
Federal law allows employers to count tips toward minimum wage. As long as tips bring total pay up to at least $7.25 per hour, employers can pay a base rate of $2.13. If tips fall short, the employer must cover the difference.
Do servers actually make less than minimum wage?
No. Total pay, including tips and base wages, must meet or exceed minimum wage. If it doesn’t, the employer is required to make up the shortfall.
What is a tip credit?
A tip credit is the portion of an employee’s tips an employer can count toward minimum wage. Under federal law, $2.13 can come from wages and up to $5.12 from tips to reach $7.25 per hour.
Is tipping mandatory?
No. But when you pay a tipped wage, you’re relying on tips to help employees reach minimum pay requirements during their shifts.
What happens if an employee doesn’t earn enough in tips?
You must make up the difference so the employee’s total earnings reach at least the full minimum wage. This is required under federal law.
Which states don’t allow tip credit?
States such as California, Oregon, Washington, Alaska, Nevada, Minnesota, and Montana require employers to pay the full minimum wage. Tips are extra and can’t be used to offset base pay.
How can I stay compliant across multiple states?
Review each state’s tip credit and minimum wage rules regularly. Many states update rates every year. Using time tracking software that supports multi-state payroll makes this much easier.
Do tips count toward overtime?
Tips don’t count as wages for overtime. Overtime is based on the employee’s regular rate of pay, and employers must still pay time-and-a-half for overtime hours. If you take a tip credit, overtime calculations can get more complicated, so it’s important to follow both federal rules and your state’s requirements.
Are tips taxed?
Yes. Tips are taxable income. Employees must report them, and employers are responsible for withholding Social Security, Medicare, and applicable income taxes.
How TimeClick Helps
Managing tipped wages correctly takes more than just tracking hours. You need clear records, accurate calculations, and a way to spot problems before they turn into payroll mistakes or compliance issues. That’s where TimeClick comes in.
TimeClick brings hours, tips, and wage data together in one place, so you can see exactly how pay adds up for every employee. Instead of catching errors after payroll runs, the system helps you identify issues early and fix them while there’s still time.
- Track hours, base wages, and tips together in a single system
- Automatically flag wage shortfalls when tips don’t meet minimum requirements
- Generate payroll-ready and audit-friendly reports with just a few clicks
- Filter and review data by job role, location, or department for multi-state compliance
- Maintain clean, organized records that make audits and labor reviews far less stressful
Whether you manage one restaurant or multiple locations across different states, TimeClick helps you stay compliant, reduce payroll headaches, and keep employee pay accurate and defensible.
If you want a closer look at how TimeClick handles time tracking, wage calculations, and compliance controls, you can explore the full feature set here: TimeClick time clock software features
Final Thoughts
Tipped wage laws can be confusing, especially with state-by-state differences and frequent updates. But compliance isn’t optional. If your business employs tipped workers, you’re responsible for making sure every paycheck adds up correctly.
With TimeClick, you can automate tracking, stay compliant, and spend less time fixing payroll issues. That means accurate records, fewer errors, and peace of mind.
