Tip Credit and Tip Pooling Questions for Workers

If you work as a server, bartender, barista, delivery driver, or in another job where customers leave tips, your paycheck can be harder to understand than a regular hourly wage. Part of your pay may come from your employer and part from customers. Your employer may count some of your tips toward the minimum wage, and you may be asked to share tips with coworkers. This guide explains the federal basics in general terms, why state rules matter so much, and where tipped workers can get help.

The federal minimum wage and tipped workers

USAGov's minimum wage page explains that the Fair Labor Standards Act (FLSA) gives covered workers the right to a minimum wage, and that the U.S. Department of Labor's Wage and Hour Division enforces it.

According to USAGov:

• The federal minimum wage is $7.25 per hour for covered nonexempt workers.
• The minimum cash wage for employees who receive tips is $2.13 per hour.
• The tips plus the $2.13 must add up to at least $7.25 per hour. If they do not, the employer must pay the difference.

The difference between the cash wage an employer pays and the full minimum wage is often called the tip credit. In plain terms, the employer is allowed to count part of your tips toward its minimum wage obligation, but only up to the point where your total reaches the minimum wage.

Why your state matters

Federal rules are only a floor. USAGov notes that some states and cities set their own minimum wage rates, and that when federal and local minimum wages differ, the higher rate applies. It also says your state may have different minimum wages for employees who receive tips.

This means the rules where you work could be quite different from the federal numbers above. Some places require a higher cash wage for tipped workers than federal law does. The USAGov minimum wage page links to resources for checking your state's rate and its rules for tipped workers. Check those before deciding whether your pay looks right.

Overtime still applies

Tipped workers can be eligible for overtime too. USAGov's overtime pay page says that, if you are eligible, employers must pay overtime when you work more than 40 hours in a workweek, at a rate of at least 1.5 times your hourly pay rate. How overtime is calculated for a tipped employee can involve extra steps, so if your overtime pay looks low, ask questions or get advice.

What tip pooling is

A tip pool is an arrangement where tips are collected and shared among a group of workers, such as servers, bussers, and bartenders. Tip pools are common in restaurants and bars.

Rules on tip pools come from both federal and state law, and they can be detailed. Questions that often come up include:

• Who is allowed to take part in the pool?
• Can managers or supervisors receive money from it?
• Does the employer take a tip credit, and does that change who can share?
• How are pooled tips divided, and is the method written down?
• Are credit card tips paid in full, and when?

The answers depend on federal rules, your state's rules, and the facts at your workplace. Because of that, this guide does not try to answer them for every situation. The Department of Labor's Wage and Hour Division and your state labor agency can explain the rules that apply where you work.

Signs something may be wrong

Consider asking questions if:

• Your cash wage plus tips does not reach the minimum wage for your hours
• You are not sure how your employer calculates a tip credit
• Managers or owners appear to be taking money from the tip pool
• Tips are held back, delayed, or reduced without explanation
• You are not paid overtime for weeks when you worked more than 40 hours
• You are paid in cash with no records, or told you are a contractor even though you work regular shifts under direction

On that last point, USAGov's job misclassification page explains that you can be an employee under federal labor laws even if you are paid in cash or told you are an independent contractor.

Keep your own records

Good records make any question easier to answer:

• Write down your hours and shifts each day.
• Keep pay stubs and any tip reports you submit.
• Note your cash and card tips, if you can.
• Save any written tip pool policy or messages about how tips are shared.

Where to get help

• Department of Labor. USAGov lists the Wage and Hour Division as responsible for enforcing labor laws, including those on the minimum wage, with a toll-free number of 1-866-487-9243.
• Your state labor agency. States with their own wage rules usually have an agency that handles complaints. USAGov's state governments directory can help you find it.
• An employment lawyer. An employment lawyer can review your pay records and explain your options under federal and state law. Ask how they charge before you start.
• Legal aid. USAGov's legal aid page lists programs that offer free or low-cost help, often for people with lower incomes.

Questions to ask a lawyer or agency

• Does my employer take a tip credit, and is it allowed in my state?
• Is my cash wage at or above the required rate where I work?
• Is our tip pool set up in a way that follows the rules?
• How should overtime be calculated for my hours?
• What records should I keep, and what deadlines apply to a claim?

Frequently asked questions

What is the federal minimum cash wage for tipped workers?

USAGov says it is $2.13 per hour, and tips plus that wage must reach at least $7.25 per hour. If not, the employer must make up the difference.

Can my state require more than the federal amount?

Yes. USAGov notes that states may set higher minimum wages, including for tipped workers, and that the higher rate applies.

Can my manager share in the tip pool?

It depends on federal and state rules and the facts. The Wage and Hour Division or your state labor agency can explain the rules that apply to you.

Who enforces federal minimum wage rules?

USAGov says the Department of Labor's Wage and Hour Division enforces the minimum wage under the FLSA.

Related: Browse more legal guides and find employment lawyers near you.

This page is general information, not legal advice. Laws change and every case is different — talk to a licensed attorney about your situation.