Tip Credit and Tip Pooling Rules: Check Your Paycheck Week by Week
How the tip credit behind a $2.13 wage works, who can legally share your tip pool, and how to check that cash wage plus tips hit minimum wage each week.
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Disclaimer: Informational only, not tax, legal, or financial advice. Federal tipped-wage rules are a floor, many states require more, and facts vary case by case. Check current DOL and state guidance or consult an employment attorney about your situation.
If you work for tips, your employer may be paying you as little as $2.13 an hour and counting your tips toward the rest of the minimum wage. That’s the tip credit, and it comes with conditions your employer has to meet every workweek.
Tip pools have their own rules, and an employer can break them in two different ways. Below we cover both under federal law, then where states go further and how to check your own paycheck.
How the Tip Credit Works (and Why $2.13 Is Only the Federal Floor)
The federal minimum wage under the Fair Labor Standards Act (FLSA) is $7.25 an hour, and it has been since July 24, 2009. An employer with tipped staff can split that $7.25 into two pieces:
- A cash wage of at least $2.13 an hour, paid by the employer
- A tip credit of up to $5.12 an hour, covered by your tips
The tip credit is the minimum wage minus the cash wage your employer pays. Pay $4.00 an hour and the credit drops to $3.25.
Who counts as a tipped employee
The tip credit only applies if you customarily and regularly receive more than $30 a month in tips in that job. An occasional holiday tip doesn’t qualify you. Some states use a different threshold.
The credit can’t exceed your actual tips
Your employer can’t claim more tip credit than the tips you actually received. If a slow week brought in $3.00 an hour in tips, the credit tops out at $3.00, not $5.12.
The workweek top-up
If your cash wage plus tips don’t reach $7.25 times your hours in each workweek, your employer must pay the difference. The test runs per workweek, not per pay period, so on a biweekly check one strong week can’t cover for a dead one. The worked example below shows the math.
Overtime doesn’t stretch the credit
Your federal overtime rate as a tipped worker is 1.5 times the full $7.25, or $10.875 an hour. The tip credit stays at $5.12, so you’re owed at least $5.755 in cash per overtime hour. DOL’s own example rounds that down to $5.75.
Multiplying your $2.13 cash wage by 1.5 gives $3.195, which is too low. For non-tipped overtime math, use the overtime calculator.
State law often beats the federal floor
Everything above is the federal minimum. Where your state or city is more protective, its rule controls.
Seven states allow no tip credit at all: Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington (plus Guam), per the DOL table effective July 1, 2026. Tipped workers there get the full state minimum wage in cash, with tips on top.
Many other states allow a tip credit but require a higher cash wage. A few examples, dated because these numbers move:
- Washington, D.C.: $10.30 an hour as of July 1, 2026
- Chicago: $12.96 an hour as of July 1, 2026, for employers with four or more workers
- Michigan: $5.49 an hour in 2026 (40% of the state minimum)
Many rates change on January 1 or July 1. Look up your current number in the DOL tipped-wage table, and see our minimum wage by state guide for full state minimums.
The Tip Credit Notice: What Your Employer Must Tell You First
Before your employer can take a tip credit, it has to tell you five things:
- The cash wage it will pay you (at least $2.13 federally)
- The amount of tip credit it is claiming (no more than $5.12)
- That the tip credit can’t exceed the tips you actually receive
- That you keep all of your tips, except for a valid pool limited to employees who customarily and regularly receive tips
- That the tip credit doesn’t apply to any employee who hasn’t been told these things
If the employer runs a mandatory tip pool and takes a tip credit, it also has to tell you how much you’re required to contribute.
Federal law accepts oral notice
Many guides say this notice must be in writing. Federally, it doesn’t have to be: DOL Fact Sheet #15 says employers “may provide oral or written notice.” A verbal notice counts. The federal problem is getting no notice at all.
Some states do require writing. New York, for example, calls for written notice in English and in the employee’s primary language. Wherever you work, ask for the notice in writing and keep a copy.
No notice, no tip credit
If your employer never gave you the notice, it can’t take the tip credit. For those hours it owes you the full minimum wage in cash, and your tips stay yours on top.
Tip Pool Rules: Who Can Share Your Tips and Who Can’t
A tip pool, or tip-out, moves part of your tips to coworkers. Federal law allows mandatory pools, but two separate rules limit who can take from them, and many guides blur them together.
Rule 1: Managers, supervisors, and owners never get your tips
This rule covers every employer, whether or not it takes a tip credit. Since 2018, the FLSA has said an employer may not keep employees’ tips “for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.”
One narrow exception: a manager can keep a tip a customer gives them for service the manager provided directly and alone. If the general manager works a table solo on a packed night, that tip is theirs. A cut of the servers’ pool is not.
Who counts as a manager
The test looks at duties, whatever the job title says. For tip purposes, a “manager or supervisor” is someone who:
- Has managing the business or a department as their primary duty
- Customarily and regularly directs the work of two or more employees
- Can hire or fire, or whose recommendations on hiring, firing, and promotion carry real weight
An owner with at least a 20% stake who actively manages counts too. No salary test applies, so an hourly “manager” who meets the duties test is out of the pool, and a shift lead who doesn’t meet it can be in.
In a January 2025 opinion letter (FLSA2025-1), DOL said manager status is judged at least workweek by workweek, not shift by shift. A supervisor who spends Tuesday night behind the bar still can’t take from the bartenders’ pool. The same letter says a pool made up only of managers isn’t allowed either.
Rule 2: With a tip credit, only tipped staff share the pool
This rule applies only when your employer takes a tip credit. Then a mandatory pool may include only employees who customarily and regularly receive tips: servers, bartenders, bussers, and counter staff who serve customers.
Cooks and dishwashers can’t be in that pool. If they are, the employer loses the tip credit.
An employer that pays the full minimum wage in cash and takes no tip credit may include cooks, dishwashers, and other back-of-house staff in a mandatory pool. Managers and supervisors are still out under Rule 1.
So before you judge whether a pool is legal, find out whether your employer takes a tip credit.
Other pool facts servers ask about
Federal law sets no maximum percentage for a mandatory pool. A tip-credit employer can count only the tips you end up with after the pool, not what you collected before tipping out. And if the employer collects and redistributes pooled tips, it generally must pay them out by the regular payday for that workweek.
The tip income calculator takes your hours, cash wage, tips, and tip-out, and flags a combined rate under $7.25. Run it one workweek at a time.
Card Fees, Service Charges, and Side Work: The Gray Areas
Credit card processing fees
Federally, if your employer pays the card company a percentage fee, it may take that same percentage out of card tips and nothing more. With a 3% fee, it can pay you 97% of the tip. Card tips must reach you by the regular payday, even if the card company hasn’t paid the employer yet.
California bans the deduction outright under Labor Code §351. Card tips there are yours in full.
Service charges are not tips
A mandatory charge added to the bill belongs to the employer, even if some of it goes to staff. Because it isn’t a tip, any service-charge money passed on to you can count toward your wages in full.
Auto-gratuities also don’t count as qualified tips for the federal tax deduction. Our No Tax on Tips guide covers that deduction and how tips are taxed.
Side work and the end of the federal 80/20 rule
You may have heard that tipped workers can spend no more than 20% of their time on side work. That was the 2021 federal “80/20/30” rule, and it’s gone. The Fifth Circuit vacated it on August 23, 2024, and DOL restored the older 1967 regulation effective December 17, 2024.
Under the restored rule, the tip credit doesn’t apply to hours in a genuinely separate, non-tipped job, like a hotel maintenance worker who also waits tables. Related duties, such as setting tables, making coffee, or occasionally washing glasses, can still be paid with a tip credit.
State rules still apply where they exist. New York bars the tip credit for the whole day if you spend two hours or more, or more than 20% of your shift (whichever is less), on non-tipped work. DOL has put new tip regulations on its agenda, but as of September 2026 no proposal had been published.
Deductions for walkouts, breakage, and uniforms
At $2.13 plus a full tip credit, you’re already at the minimum wage. Docking you for a walkout, a register shortage, breakage, or a uniform pushes you below it, which federal law doesn’t allow (DOL Fact Sheet #16 covers the general rule).
Don’t confuse any of this with the “FICA tip credit,” which is an employer income-tax credit and doesn’t affect your wage.
What Happens When an Employer Gets It Wrong
The consequence depends on which rule was broken.
Tips kept by the employer, a manager, or a supervisor. The employer is liable for any tip credit it took, plus all the tips it kept, plus an equal amount as liquidated damages. DOL can also assess civil money penalties for each violation.
No notice, or an invalid pool. Skipping the notice, letting a manager take from the pool, or putting back-of-house staff in a tip-credit pool forfeits the tip credit. The employer then owes the full minimum wage in cash for the affected hours, plus any tips it took.
Tips fell short of the credit claimed. This one isn’t a forfeit. The credit is capped at the tips you actually got, and the employer pays the rest. Skipping that top-up is a minimum-wage violation.
Deadlines and where to file
You generally have two years to bring a federal claim, or three if the violation was willful.
You can file a confidential complaint with the DOL Wage and Hour Division (WHD) at 1-866-487-9243, or with your state labor department, since state law may cover more. The FLSA makes it illegal to retaliate against you for complaining.
Since mid-2025, WHD no longer seeks liquidated damages in its administrative settlements, so the doubling generally takes a lawsuit. Our guide to disputing a short paycheck walks through that choice.
Whichever route you take, bring dates and hours worked, pay stubs, tip records, and any written pool policy or notice you received.
Check Your Own Tipped Paycheck, Week by Week
A worked example
Say you work in a state that follows the federal floor. You log 30 hours in one workweek at a $2.13 cash wage and collect $120 in tips.
| Line | Amount |
|---|---|
| Minimum owed for the week (30 × $7.25) | $217.50 |
| Cash wage paid (30 × $2.13) | $63.90 |
| Tips received that week | $120.00 |
| Cash wage plus tips | $183.90 |
| Shortfall your employer must pay | $33.60 |
Your employer can’t claim the full $153.60 in tip credit ($5.12 × 30), because you only received $120 in tips. So it owes $97.50 in cash wages that week ($217.50 minus $120): the $63.90 base plus a $33.60 top-up.
Now picture a biweekly check where the other week brought in $600 in tips. The pay period looks great, but your employer still owes you $33.60 for the slow week, because the two weeks can’t be averaged.
A four-question checklist
- Did I get the tip credit notice? If not, the employer can’t take the credit.
- Did my cash wage plus tips cover the minimum wage times my hours for each workweek? Use your state’s rate if it’s higher.
- Who’s in the pool, and does my employer take a tip credit? Managers are out either way. Cooks are out if there’s a tip credit.
- Were card tips paid by payday, minus no more than the actual processing fee? Your pay stub should show what came out.
Keep your own record
The checklist only works with your own numbers. In ClockWage44, you can set up the tipped job at your cash wage, set the job’s week start day to match your employer’s workweek, and log every shift. The week grid then shows your hours and cash-wage gross for each workweek.
Log tips as additional income so they show up in your paycheck estimate. Then add each week’s tips to that week’s gross and compare against your hours times the minimum wage.
The app doesn’t have a tip-credit mode. Its overtime line is your entered rate times your multiplier, so a $2.13 rate at 1.5x works out to $3.195 per overtime hour, not the $5.755 federal minimum. Check any hours over 40 by hand against $5.755 cash per hour, or your state’s higher figure.
The week-by-week job history, plus PDF and date-range exports on the paid plan, give you a dated record to hand to WHD or a lawyer. If you want that record on your phone, download the app, or browse more free pay tools.
References
- DOL Fact Sheet #15: Tipped Employees Under the FLSA: cash wage, tip credit, notice, pooling, and card-fee rules.
- DOL: Minimum Wages for Tipped Employees: state tipped cash wages and tip credits, effective July 1, 2026.
- DOL: Minimum Wage: the $7.25 federal minimum wage.
- 29 U.S.C. 203: FLSA section 3(m) tip credit and tip retention, and 3(t) tipped employee definition.
- 29 CFR 531.52: Restrictions on Employer Use of Tips: the manager and supervisor definition.
- 29 CFR 531.54: Tip Pooling: who may join a pool with and without a tip credit.
- 29 CFR 531.55: Service Charges: why compulsory charges are not tips.
- 29 CFR 531.56: Tipped Employees and Dual Jobs: the $30 monthly threshold and the restored dual-jobs text.
- 29 CFR 531.59: The Tip Wage Credit: the credit cap, top-up, and notice requirements.
- 29 CFR 531.60: Overtime Payments: overtime for tipped employees.
- DOL elaws: Tipped Employee Overtime Example: the federal tipped overtime calculation.
- DOL Opinion Letter FLSA2025-1: managers and supervisors in tip pools, judged by workweek.
- Restaurant Law Center v. U.S. Department of Labor (5th Cir. 2024): the decision vacating the 2021 dual-jobs rule.
- Federal Register, December 17, 2024: DOL restores the pre-2021 dual-jobs regulation.
- California Labor Code §351: no processing-fee deductions from card tips.
- 12 NYCRR Subpart 146-2: New York’s written tip credit notice requirement.
- 12 NYCRR 146-2.9: New York’s limit on non-tipped work.
- 29 U.S.C. 216: remedies, liquidated damages, and civil money penalties.
- 29 U.S.C. 255: the two-year and three-year filing deadlines.
- DOL WHD: How to File a Complaint: confidential wage complaints.
- IRS: FICA Tip Credit for Employers: the unrelated employer tax credit.
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Frequently Asked Questions
Can my manager be part of the tip pool?
No, not if their duties make them a manager or supervisor (running the business or a department, directing two or more employees, and having real say in hiring and firing), whatever their job title. Federal law bars them from the pool whether or not your employer takes a tip credit, though they may keep tips a customer gives them for service they provided directly and alone.
Can cooks and dishwashers share in the tip pool?
Only if your employer pays the full minimum wage in cash and takes no tip credit. If it pays a reduced cash wage like $2.13, a mandatory pool may include only customarily tipped staff such as servers, bartenders, and bussers.
What happens if my tips don't bring me up to minimum wage?
Your employer must make up the difference so your cash wage plus tips equal at least $7.25 an hour federally, or more where state law is higher. The check runs workweek by workweek, not by pay period.
Can my employer take the credit card fee out of my tips?
Under federal law, only the actual processing percentage: with a 3% fee, it can pay you 97% of the tip, and it must pay by your regular payday. Some states, including California, ban the deduction entirely.
Does my employer have to give me the tip credit notice in writing?
Not under federal law, which allows oral or written notice of the cash wage, the tip credit amount, and your right to keep your tips. Some states, such as New York, require written notice, and asking for a written copy is smart anywhere.
Is the 80/20 rule still in effect for tipped workers?
Not federally. A federal appeals court struck down the 2021 rule in August 2024 and DOL restored the older dual-jobs regulation, though some states, including New York, still limit non-tipped side work.
Which states don't allow a tip credit?
As of July 1, 2026, Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington require the full state minimum wage in cash before tips. Check the DOL's tipped-wage table for your state's current rate.
How much should I get paid for overtime as a tipped employee?
Federally, at least $5.755 in cash per overtime hour: 1.5 times $7.25 is $10.875, minus the same $5.12 tip credit. Higher state minimums raise that number.