If you work in a job where you “customarily and regularly” make more than $30 per month in tips, then under federal law you are considered a tipped employee and subject to special laws on minimum wage and overtime pay. Many states also have special laws for tipped employees, and some may have different standards for qualification as a tipped employee than the federal standard. For additional information about laws in your state, see the DOL’s Minimum Wages for Tipped Employees page.

The federal minimum wage provisions, including those covering tipped employees, are contained in the Fair Labor Standards Act (FLSA). Many states also have minimum wage laws covering tipped employees. For additional information about laws in your state, see the DOL’s Minimum Wages for Tipped Employees page, or contact the agency in your state which handles wage and hour/labor standards violations, listed on our site’s state government agencies page.

More than a hundred million American workers are protected (or “covered”) by the FLSA.

There are two ways in which an employee can be covered: “enterprise coverage” and “individual coverage.” Either standard is sufficient for you to be covered and entitled to receive the minimum wage.

Enterprise coverage: Employees who work for certain businesses or organizations (or “enterprises”) are covered by the FLSA. These enterprises, which must have at least two employees, are:

• those which do at least $500,000 a year in business; or
• hospitals, businesses providing medical or nursing care for residents, schools and preschools, and government agencies

Individual coverage: Even when there is no enterprise coverage, employees are protected by the FLSA if their work regularly involves them in commerce between states (“interstate commerce”). In its own words, the law covers individual workers who are “engaged in commerce or in the production of goods for commerce.”

• Examples of employees who are involved in interstate commerce include those who: produce goods (such as a worker assembling components in a factory or a secretary typing letters in an office) that will be sent out of state, regularly make telephone calls to persons located in other States, handle records of interstate transactions, travel to other States on their jobs, and do janitorial work in buildings where goods are produced for shipment outside the State.

Domestic service workers (such as housekeepers, full-time babysitters, chauffeurs and cooks) are normally covered by the law, as long as:

• their cash wages from one employer are at least $1,000 in a calendar year (or the amount designated pursuant to an adjustment provision in the Internal Revenue Code), or
• they work a total of more than 8 hours a week for one or more employers.

Employers whose enterprises are covered by the FLSA, or who have employees engaged in interstate commerce are required by the FLSA to pay the minimum wage and follow the special provisions applicable to tipped employees. Unlike some other laws relating to employment, the standard does not hinge upon how many employees the employer has, but instead looks at the nature of the work performed by the enterprise and the employee to determine whether interstate commerce is involved. For more information, please see the previous question.

Yes, under certain circumstances. Under federal law, an employer of a tipped employee is only required to pay $2.13 per hour in direct wages if that amount combined with the tips received at least equals the federal minimum wage. If your tips combined with the employer’s direct wages of at least $2.13 per hour do not equal the federal minimum hourly wage, the employer must make up the difference. Many states, however, require higher direct wage amounts for tipped employees, or calculate the offset differently. For additional information about laws in your state, see the DOL’s Minimum Wages for Tipped Employees page, or contact the agency in your state which handles wage and hour/labor standards violations, listed on our site’s state government agencies page.

In order to take advantage of the tip offset provision under federal law, your employer must:

• inform you in advance about the tip credit allowance (including amount to be credited) before the credit is utilized;
• ensure that you receive at least the minimum wage when direct wages and the tips you receive are combined; and
• allow you to keep all tips, whether or not the employer elects to take a tip credit for tips received, except to the extent you participate in a valid tip pooling arrangement (as discussed in more detail below).

If your tips combined with the employer’s direct wages of at least $2.13 per hour do not equal the federal minimum hourly wage (currently $7.25 per hour), the employer must make up the difference. Many states, however, require higher direct wage amounts for tipped employees, or calculate the offset differently. For additional information about laws in your state, see the DOL’s Minimum Wages for Tipped Employees page, or contact the agency in your state which handles wage and hour/labor standards violations, listed on our site’s state government agencies page.

Where an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher of the two minimum wages. For additional information about laws in your state, see the DOL’s Minimum Wages for Tipped Employees page, or contact the agency in your state which handles wage and hour/labor standards violations, listed on our site’s state government agencies page.

Even if your employer uses the tip offset to calculate your wages, if you are eligible for overtime, the rate of pay used to calculate overtime pay is the full federal minimum wage of $7.25 per hour, not the $2.13 per hour in direct wages from your employer. The tip credit of $3.02 per hour is subtracted after the overtime pay is calculated. For example, if you work an extra five hours in a work week, for those hours you must be paid $10.88 per hour ($7.25 per hour X 1.5), minus the tip credit ($3.02 per hour X 1.5), for an effective hourly rate of $6.72.

No. It is against the law for the employer to require that any part of the tip received becomes the property of the employer. A tip is the sole property of the tipped employee. If your employer does not strictly observe the tip credit provisions of the FLSA, no tip credit may be claimed and you are entitled to receive the full cash minimum wage, in addition to retaining tips you may or should have received.

Even though the FLSA requires that an employee must retain all tips, tip splitting or pooling arrangements among employees who customarily and regularly receive tips, such as waiters, waitresses, bellhops, counter personnel (who serve customers), busboys/girls and service bartenders are legally allowed. However, tipped employees may not be forced to share their tips with employees who have not customarily and regularly participated in tip pooling arrangements, such as dishwashers, cooks, chefs, and janitors, defined by whether employees usually share in tips in a similar type restaurant in your area.

Only those tips that are in excess of tips used for the tip credit may be taken for a pool. Tipped employees cannot be required to contribute a greater percentage of their tips than is customary and reasonable.

When you work in both a tipped and a non-tipped position, an employer may only take a tip credit when its tipped employees perform work that is part of the employee’s tipped occupation. Work that is part of the tipped occupation includes work that produces tips as well as work that directly supports tip-producing work, provided the directly supporting work is not performed for a substantial amount of time.

Where tips are charged on a credit card and the employer must pay the credit card company a percentage on each sale, then the employer may pay the employee the tip, less that percentage. This charge on the tip may not reduce the employee’s wage below the required minimum wage. The amount due the employee must be paid no later than the regular pay day and may not be held while the employer is awaiting reimbursement from the credit card company.

Unfortunately, yes. If the employer sets the amount of the gratuity, the money is considered corporate income for the business; it is not considered a tip for employees. By law, a “tip” is deemed to be a gift from the customer to the server–whether a customer gives a tip and the amount of the tip is at the discretion of the customer. If the tip is set by the establishment, there is no longer any customer discretion. Consequently, the employer has the right to give all, some or none of the so-called “gratuity” to you as a server, and must treat whatever is given to you as wages, not tip income, for tax purposes.

If you receive more than $30 in a month in tips, all these tips count as income that you must report and pay taxes on. That includes your cash tips, your charge-card tips, and any tips you get from other employees, minus what you tip out to others. You may have heard all you need to do is report tips equal to 8% of sales, or 10%, or just your charge-card tips. However, this is incorrect: the law requires employees to report and pay taxes on 100% of the tips they keep after tip-outs. The 8% figure is simply a threshold below which many employers must allocate tips on your behalf for tax purposes and report certain additional information to the IRS. The IRS can use this information to flag restaurants where employees may be underreporting tips.

The FLSA is enforced by the Wage-Hour Division of the U.S. Department of Labor. Wage-Hour’s enforcement of FLSA is carried out by investigators stationed across the U.S., who conduct investigations and gather data on wages, hours, and other employment conditions or practices, in order to determine whether an employer has complied with the law. Where violations are found, they also may recommend changes in employment practices to bring an employer into compliance.

It is a violation to fire or in any other manner discriminate against an employee for filing a complaint or for participating in a legal proceeding under FLSA.

Willful violations may be prosecuted criminally and the violator fined up to $10,000. A second conviction may result in imprisonment. Employers who willfully or repeatedly violate the minimum wage requirements are subject to a civil money penalty of up to $1,000 for each such violation.

The FLSA makes it illegal to ship goods in interstate commerce which were produced in violation of the minimum wage, overtime pay, child labor, or special minimum wage provisions.

To contact the Wage-Hour Division for further information and/or to report a potential FLSA minimum wage violation, call:

Toll Free: (866) 4USWAGE (866-487-9243)
TTY: (877) 889-5627
(available Monday-Friday 8 a.m. to 5 p.m. Eastern Time)

You may also contact your local WHD office.

If you need further information about your state’s minimum wage law and/or wish to report a potential state minimum wage law violation, then you may wish to contact the agency in your state which handles wage and hour/labor standards violations, listed on our site’s state government agencies page.

There are several different methods under the FLSA for an employee to recover unpaid minimum and/or overtime wages; each method has different remedies.

• Wage-Hour may supervise payment of back wages.
• The Secretary of Labor may bring suit for back wages and an additional penalty, called “liquidated damages,” which can be equal to the back pay award (essentially doubling the damages) if an employer willfully violated the statute.
• An employee may file a private lawsuit for back pay and an equal amount as liquidated damages, plus attorney’s fees and court costs. An employee may not bring a lawsuit if he or she has been paid back wages under the supervision of Wage-Hour or if the Secretary of Labor has already filed suit to recover the wages.
• The Secretary of Labor may obtain an injunction to restrain any person from violating FLSA, including the unlawful withholding of proper minimum wage and overtime pay.

Your state law may have different methods for recovery of unpaid wages, and different remedies to be awarded to those who succeed in proving a violation. For further information, please contact the agency in your state which handles wage and hour/labor standards violations, listed on our site’s state government agencies page.

To file a complaint for unpaid wages under the FLSA, you may either go to the WHD, which may pursue a complaint on your behalf, or file your own lawsuit in court (which may require you to hire an attorney).

Do not delay in contacting the WHD or your state agency to file a claim. There are strict time limits in which charges of unpaid wages must be filed. To preserve your claim under federal law, you must file a lawsuit in court within 2 years of the violation for which you are claiming back wages, except in the case of an employer’s willful violation, in which case a 3-year statute applies. However, as you might have other legal claims with shorter deadlines, do not wait to file your claim until your time limit is close to expiring. You may wish to consult with an attorney prior to filing your claim, if possible. Yet if you are unable to find an attorney who will assist you, it is not necessary to have an attorney to file your claim with the state and federal administrative agencies.

Details about how to file a complaint are available at DOL’s website.

Your state wage law may have different deadlines for recovery of unpaid wages. For further information, select your state from this list.

U.S. Department of Labor Tips Page
DOL Tipped Employees Fact Sheet