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HR Compliance Calculators
Updated 2026

Tip Credit Calculator

Check whether a tipped employee’s direct cash wage plus tips reaches the applicable minimum wage, how much tip credit the employer is claiming, and any shortfall it must make up — under 29 U.S.C. §203(m) and DOL Fact Sheet #15.

Use this calculator when

  • Employee regularly receives more than $30/month in tips
  • Employer pays a reduced cash wage and counts tips toward the minimum
  • You want to confirm cash wage + tips meets the minimum wage
  • Federal rule — several states ban the tip credit outright
Wrong fit?For overtime, which for tipped employees is based on the full minimum wage, not the reduced cash wage.FLSA Overtime Calculator

Calculator

Checks whether cash wage plus tips meets the applicable minimum wage under 29 U.S.C. §203(m).

Effective hourly rate

$8.13

$2.13 cash + $6.00 tips = $8.13/hr vs. federal minimum $7.25/hr

Applicable minimum
$7.25/hr
Tip credit
$5.12/hr
Shortfall / hr
$0.00
Shortfall / week
$0.00

Cash wage $2.13 plus $6.00 in tips reaches $8.13/hr, meeting the federal minimum of $7.25/hr. The employer claims a tip credit of $5.12/hr.

✓ Meets the federal minimum wage of $7.25/hr.

Many states set a tipped cash-wage floor higher than the federal $2.13/hr. This calculator validates against the federal floor and the applicable minimum wage — confirm your state’s specific tipped cash-wage requirement with your state labor agency.

Cash wage plus tips reaches $8.13/hr, meeting the $7.25/hr minimum. The employer is claiming a tip credit of $5.12/hr.

This models the base tip-credit math only. It does not cover the notice requirements of §203(m), the rules on tip pooling and retention, overtime for tipped employees (computed on the full minimum wage, not the cash wage), or the dual-jobs / side-work limits in 29 CFR §531.56.

Formula

applicable_min = max(federal $7.25, state minimum)
effective_hourly = cash_wage + tips_per_hour
tip_credit = min(tips, applicable_min − cash_wage)
shortfall = max(0, applicable_min − effective_hourly)
no-tip-credit states → cash_wage must equal applicable_min
federal floor → cash_wage must be at least $2.13

The federal maximum tip credit is $5.12/hr — the gap between the $2.13 cash-wage floor and the $7.25 minimum. A higher state minimum raises the target the tips have to reach, so the same cash wage and tips can be compliant in one state and short in another.

Worked example

A server is paid the federal cash wage and has a slow week.

  1. Direct cash wage: $2.13/hr
  2. Average tips this week: $4.00/hr
  3. Effective hourly: $2.13 + $4.00 = $6.13/hr
  4. Federal minimum wage: $7.25/hr
  5. Shortfall: $7.25 − $6.13 = $1.12/hr
  6. Over a 30-hour week: $1.12 × 30 = $33.60 the employer owes

The employer cannot simply rely on a good week to average out a bad one — the minimum-wage test is applied each workweek, so a slow week creates a real, per-workweek obligation to top the employee up.

Frequently asked questions

What is a tip credit?

A tip credit lets an employer count part of an employee’s tips toward its minimum-wage obligation, paying a reduced direct "cash wage" instead of the full minimum. Under federal law (29 U.S.C. §203(m)) the cash wage can be as low as $2.13/hr, and the maximum tip credit is $5.12/hr — the difference between $2.13 and the $7.25 federal minimum. The catch: cash wage plus tips must actually reach the full minimum wage every workweek.

What happens if tips don’t bring the employee up to minimum wage?

The employer must make up the difference. If a server earning $2.13/hr in cash has a slow week and tips only bring them to $6.00/hr, the employer owes the $1.25/hr gap for every hour worked that week (29 CFR §531.59). Failing to cover that shortfall is one of the most common tip-credit violations found in DOL investigations.

Which states don’t allow a tip credit?

Seven states require the full state minimum wage to be paid as a direct cash wage, with tips on top: Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. In these states a $2.13 cash wage is unlawful no matter how much the employee earns in tips. Many other states allow a tip credit but set a cash-wage floor higher than the federal $2.13 — always confirm your state’s figure.

How is overtime calculated for tipped employees?

Overtime for tipped employees is based on the full minimum wage, not the lower cash wage. The regular rate is at least the full applicable minimum wage; time-and-a-half is computed on that, and the same tip credit (up to $5.12/hr federally) may be applied against the overtime rate. Employers sometimes wrongly compute overtime on the $2.13 cash wage, which underpays the employee.

Can the employer keep any of the tips?

No. Tips are the property of the employee. An employer that takes a tip credit cannot keep any portion of tips, and managers and supervisors may never share in a tip pool. Valid tip pools are limited to employees who customarily receive tips (unless no tip credit is taken, which changes some pooling rules). Keeping tips or including managers can forfeit the tip credit entirely and trigger damages.

Related reading

Sources