Tipped Minimum Wage vs. Regular Minimum Wage: What Food Service Employers Need to Know

The federal minimum wage is $7.25 an hour. The federal tipped minimum wage is a $2.13 minimum cash wage, and tips must bring a tipped employee's total to at least $7.25 an hour each workweek.

First, check whether your state and local minimum wage laws allow a tip credit. If they do, the Fair Labor Standards Act (FLSA) generally allows you to pay eligible tipped employees a cash wage of at least $2.13 an hour and count up to $5.12 an hour in tips toward the $7.25 federal minimum wage. State or local law may require a higher minimum wage or cash wage.

This applies whether you run a full-service restaurant, a café, a bar, a food truck or a catering business.

‍SurePayroll® By Paychex supports payroll processing for restaurant teams with tipped employees and hourly staff in one system.

For more on how to pay tipped and hourly staff, see the restaurant payroll guide.

How the tipped minimum wage differs from the minimum wage

The minimum wage sets the least an employee must receive for each hour worked. When you take a tip credit, you pay an eligible tipped employee a lower direct cash wage, sometimes called a base wage, and count a limited amount of the employee's tips toward your minimum wage obligation. The employee must still receive at least the full applicable minimum wage for all hours worked.

Under federal law, the maximum tip credit is $5.12 an hour though in jurisdictions where the minimum wage has increased beyond the federal amount, state and local law may allow employers to claim a greater tip credit amount. Subtracting that credit from the $7.25 federal minimum wage leaves a minimum cash wage of $2.13 an hour (DOL Fact Sheet #15). Some sources call the minimum cash wage a "subminimum wage," but it doesn't lower the minimum wage the employee must receive.

If an employee's cash wage plus tips falls short of the minimum wage in any workweek, you pay the difference. If you take a tip credit, you can't calculate overtime using only the reduced cash wage.

Under the FLSA, you calculate a tipped employee's overtime based on at least the full federal minimum wage, not the lower cash wage. You also can't take a larger FLSA tip credit for an overtime hour than for a straight-time hour (DOL Fact Sheet #15). State or local law may require a different or more protective overtime calculation.

How to do payroll for a restaurant or food truck walks through the calculations.

Four conditions for paying tipped employees a lower cash wage

You can pay servers and other tipped workers a cash wage below the minimum wage only when your state allows a tip credit (DOL state tipped wage table) and all four of these are true:

1. The employee is a tipped employee. Under the FLSA, that's someone who customarily and regularly receives more than $30 a month in tips. "Customarily and regularly" means more often than occasionally, though not necessarily constantly. A barista who receives tips through a tip prompt on every shift can qualify. An employee who receives tips only occasionally, such as during the holidays, may not meet that standard (29 CFR §531.57). Some states use a different monthly threshold, so check yours.

2. You tell your employees before you take the tip credit. Under federal law, you must inform each tipped employee in advance of five things (DOL Fact Sheet #15):

• the cash wage you pay, at least $2.13 an hour
• the amount of tip credit you claim, no more than $5.12 an hour
• that the tip credit can't exceed the tips the employee receives
• that the employee keeps all tips, except tips shared through a valid tip pooling arrangement
• that the tip credit doesn't apply to any employee who hasn't been informed of these provisions

Without this notice, you can't take the tip credit. Consider giving the notice in writing at hire so you have a record of the information you provided.

3. They keep their tips. You, your managers and your supervisors can't keep any part of an employee's tips. If you pass along the processing fee on tips paid by card, federal law lets you reduce the tip only by the amount of the actual transaction fee (DOL Fact Sheet #15). Some states restrict or prohibit this deduction, so check your state law before you make it.

4. Cash wage plus tips reach the minimum wage each workweek. Check every workweek on its own, not the pay period as a whole. If an employee falls short, you pay the difference as additional wages. The restaurant and food truck payroll guide shows the calculation.

The tip credit also applies only to hours worked in the tipped job. When an employee works a separate role that isn't tipped, such as a server who's also employed as a maintenance worker, you can't take a tip credit for the maintenance hours (DOL Fact Sheet #15).

A mandatory service charge, such as an automatic gratuity on large parties, isn't a tip under the FLSA, so you can't count it toward the tip credit. Service charges you distribute to employees can count as wages toward your federal minimum wage and overtime obligations, and you must include them in the regular rate when you calculate overtime (29 CFR §531.55; DOL Fact Sheet #15).

Paying the full minimum wage opens your tip pool to the whole team

Even when state law allows a tip credit, you don't have to take it. If every worker included in a mandatory tip pool receives a direct cash wage of at least the full applicable minimum wage, the pool may include cooks, dishwashers and other employees who don't customarily and regularly receive tips (29 CFR §531.54).

If you take a tip credit, a mandatory tip pool may include only employees who customarily and regularly receive tips, such as servers, bartenders and bussers. Employers, managers and supervisors can't receive distributions from either type of mandatory tip pool. Some states set their own limits on who can join a tip pool, so check your state's rules before you include non-tipped employees.

Paying the full minimum wage in cash may be the more practical structure in certain situations:

• Counter-service cafés and food trucks, where the same people take orders, prep food and share one tip jar.
• Staff who split shifts between tipped and non-tipped work, where you can't take a tip credit for the hours in a separate non-tipped job anyway.
• Teams on a single cash wage, where everyone earns at least the minimum wage in cash. Without a tip credit, you don't give tip credit notices or check each workweek whether tips brought an employee's cash wage up to the minimum wage.

Take a food truck with three employees: two work the window and take orders, and one works only the grill. If you pay all three at least the full minimum wage in cash, all three can share the tip jar. If you take the tip credit for the window staff, the grill cook can't share in a tip pool the window staff are required to join.

Make this decision before the first pay period so you can set each employee's cash wage and establish the appropriate tip pool rules. The restaurant payroll guide covers how the choice fits the rest of your pay structure.

Your state sets its own minimum wage and its own tip credit rules

Your state makes two separate decisions that shape what you pay tipped employees:

• The state minimum wage. This is the total a tipped employee's cash wage plus tips has to reach. When applicable federal, state and local minimum wages differ, pay the highest applicable rate. Some cities and counties set rates higher than the state minimum wage, and the FLSA doesn't excuse you from a higher state or local minimum wage (29 U.S.C. §218(a)).
• The state tip credit rule. Some states don't allow a tip credit at all, so you pay tipped workers the full state minimum wage in cash. Other states allow a tip credit, sometimes smaller than the federal maximum. In those states, the minimum cash wage is the state minimum wage minus the largest tip credit the state allows.

These are separate rules: a state's minimum wage doesn't determine whether it allows a tip credit. Virginia is one example. Its state minimum wage is above $7.25, but its minimum cash wage remains $2.13 (DOL state tipped wage table, revised July 1, 2026).

Examples reflect the DOL state tipped wage table revised July 1, 2026. Many states adjust their minimum wage every year. Check the DOL state tipped wage table and your state labor department for current minimum wage requirements before you set pay rates, and again each year.

Confirm your minimum wage and cash wage before the first pay period

Make these decisions when you set up payroll, then review your rates and policies when applicable minimum wage laws change:

1. Confirm the minimum wage requirements that apply to you, and pay the highest applicable rate: federal, state or local.
2. Confirm whether your state allows a tip credit and what minimum cash wage it sets, then decide whether to take the tip credit or pay the full minimum wage in cash.
3. If you take the tip credit, give each tipped employee the required notice before you take it.
4. Write your tip pool rules to match that decision.
5. Each workweek, confirm that every tipped employee's cash wage plus tips reached the minimum wage, and pay any difference.

For example, if you operate a café in a state that allows a tip credit, you may choose to pay baristas and kitchen staff at least the full state minimum wage in cash so both groups can participate in a mandatory tip pool. Document that decision in your pay and tip pool policies before your first hire.

The onboarding process has been simplified and painless. When I had questions I felt like I had concierge service with timely and fully informative responses.

— Malcolm W., Trustpilot review

When employees receive tip income, you must also account for tip reporting and payroll tax withholding. The restaurant payroll guide covers those responsibilities.

Run payroll for your tipped and hourly staff

Once you set your pay rates and tip pool rules, SurePayroll supports payroll for the restaurant team you've built.

‍See how SurePayroll fits your restaurant.