Minimum Wage for Servers: Federal Tip Credit and State Rules

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The minimum wage for servers depends on both federal and state law. Federal law permits a limited tip credit, but it does not make $2.13 the total minimum wage and does not override more protective state or local rules.

The federal minimum is still $7.25, not $2.13

The Fair Labor Standards Act sets a federal minimum wage of $7.25 per hour for covered nonexempt employees. For a tipped employee, an employer may count a limited amount of tips toward that obligation if every statutory and regulatory condition is satisfied.

The employer must pay at least $2.13 per hour in direct cash wages and may claim no more than $5.12 per hour as a tip credit. If direct wages plus tips do not reach $7.25 for the workweek, the employer must make up the difference.

A tipped employee is an employee engaged in an occupation in which the employee customarily and regularly receives more than $30 per month in tips. Servers, bartenders, bussers, and other restaurant workers may meet that definition depending on their actual occupation and tip receipts.

Notice is required before taking a tip credit

Before using a federal tip credit, an employer must inform the employee of the direct cash wage, the additional credit claimed, the rule limiting the credit to tips actually received, the employee’s right to retain tips except under a valid pool, and the fact that no credit applies without notice. Federal guidance permits oral or written notice, though another law may require a particular form.

If the required information is not provided, the employer cannot use the federal tip credit. Paying $2.13 without a valid credit would not satisfy the federal minimum-wage obligation.

Tip ownership and tip pools follow separate rules

Employers, managers, and supervisors may not keep any portion of employees’ tips. This prohibition applies even when the employer pays the full minimum wage and takes no tip credit.

When an employer takes a tip credit, a mandatory tip pool generally must be limited to workers who customarily and regularly receive tips, such as servers, bussers, and service bartenders. Cooks and dishwashers generally cannot be included in that traditional pool.

If the employer pays the full federal minimum wage directly and takes no tip credit, federal law permits a broader mandatory pool that may include certain non-tipped workers. Managers and supervisors still cannot receive other employees’ pooled tips.

Service charges are not tips under federal law

A compulsory service charge, such as a required percentage added to a bill, is not a tip under the FLSA. Amounts distributed from a service charge may satisfy wage obligations, but they are employer-paid compensation and generally enter the regular rate used for overtime.

A voluntary payment selected by a customer is treated differently. The substance of the payment, rather than the label on a receipt, determines the federal classification.

Overtime uses the full minimum wage baseline

Covered nonexempt restaurant employees generally receive overtime after 40 hours in a workweek at one and one-half times the regular rate. An employer taking a tip credit cannot calculate the premium from the reduced $2.13 cash wage alone.

The maximum tip credit for an overtime hour does not increase merely because the overtime rate is higher. Service charges, commissions, and certain bonuses may also have to be included in the regular rate.

The articles on federal wage standards and the Fair Labor Standards Act provide broader context for wage coverage and overtime.

State law often changes the server minimum wage

Some states prohibit a tip credit and require the full state minimum wage before tips. Others permit a smaller credit, require a higher direct cash wage, or impose additional notice, pooling, or credit-card-tip rules.

As of January 1, 2026, the Department of Labor’s state table lists California, Alaska, Minnesota, Nevada, Oregon, Washington, and several other jurisdictions among those requiring the full applicable state minimum wage before tips. State rates and local ordinances can change during the year.

When federal and state wage laws both apply, the more protective applicable standard controls. A server’s correct cash wage therefore depends on work location, employer coverage, current state and local rates, and whether the employer satisfies every tip-credit condition.

Deductions cannot defeat minimum wage and overtime

Deductions for uniforms, shortages, walkouts, tools, or breakage may not reduce covered employees below the required minimum wage or overtime compensation. An employer claiming a tip credit generally has no additional wage margin for such deductions at the federal minimum.

Sources

• Department of Labor Fact Sheet 15: Tipped Employees
• Department of Labor: State Minimum Wages for Tipped Employees
• Department of Labor: Tips
• Department of Labor Fact Sheet 15B: Managers and Tips
• Department of Labor: Current FLSA Tip Regulations
• Department of Labor Fact Sheet 2: Restaurants
• 29 U.S.C. § 203: Wage and tip definitions
• 29 U.S.C. § 206: Federal minimum wage