Calculating the minimum wage of workers who receive tips (such as food servers) can be complicated. Employees who receive tips from their customers as a way to supplement their income are considered tipped employees. According to the Department of Labor, a tipped employee receives an average of more than $30 in tips per month.
Cash wage is the minimum wage for tipped employees. It’s $2.13 an hour. This cash wage combined with tips is used to calculate the federal minimum wage, which is $7.25 an hour. Many states and localities have set minimum wages above the federal rate ).
Tips can be considered “tip credits” that allow employers to pay their employees less than the federal minimum wage.
Employers may deduct up to $5.12 an hour from a worker’s wages as tips. If the employee’s wage (at least $2.13 an hour plus tips) is less than $7.25 an hour, then their employer must make up for that difference.
Minimum tip wages by state
The minimum tip credit and the maximum tip credit vary from state to state, and even city to city.
Washington, D.C., is home to the highest minimum wage in the nation for tip workers. Washington, D.C. residents will vote in 2022 to increase the minimum wage of tipped workers incrementally each year up until July 1, 2020. The tipped wage will then be equal to the nontipped wage for that year. The current minimum wage for tipped employees is $5.35 an hour and $16.10 per hour for nontipped employees.