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    Can You Be Paid Less Than Minimum Wage as a Tipped Worker?

    James LawBy James LawMay 21, 2026No Comments7 Mins Read
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    Can You Be Paid Less Than Minimum Wage as a Tipped Worker?
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    The Fair Labor Standards Act (FLSA) governs minimum wage laws, allowing employers to pay tipped workers less than the standard minimum wage, $7.25 per hour, under certain conditions. This law affects millions of workers in the service industry, including restaurant and bar employees, who rely on tips to supplement their income.

    As of January 1, 2020, the FLSA requires employers to pay tipped workers a minimum of $2.13 per hour, provided that the employee’s tips bring their hourly wage up to the standard minimum wage within a 28-day period.

    Minimum Wage Standard

    The FLSA sets the federal minimum wage at $7.25 per hour, but Section 203(m) of the statute allows employers to pay tipped workers a lower wage, $2.13 per hour, as long as the employee’s tips make up the difference. This is where the law gets teeth, as employers must ensure that the combination of wages and tips equals or exceeds the standard minimum wage. In practice, this means that employers must track employee tips and wages carefully to avoid violating the FLSA.

    Under the FLSA, employers are also required to inform tipped workers about the minimum wage law and the tip credit provisions, which allow employers to apply a portion of the employee’s tips towards the minimum wage requirement. The statute sets a 80/20 rule, where 80% of an employee’s time must be spent on tip-generating activities, and 20% on non-tipped work, to qualify for the lower wage.

    In plain terms, the FLSA requires employers to pay tipped workers at least $2.13 per hour, and to ensure that the employee’s tips bring their hourly wage up to the standard minimum wage, $7.25 per hour, within a 28-day period. If the employee’s tips do not make up the difference, the employer must pay the employee the standard minimum wage.

    When the Answer is YES

    Employers can pay tipped workers less than the standard minimum wage, $7.25 per hour, if the employee’s tips bring their hourly wage up to the standard minimum wage within a 28-day period. The FLSA requires employers to keep accurate records of employee tips and wages, and to inform employees about the minimum wage law and the tip credit provisions. In practice, this means that employers must track employee tips and wages carefully to avoid violating the FLSA, and must provide employees with written notice of the tip credit provisions.

    The FLSA also sets a $30 per month threshold for tipped employees, below which the employer is not required to apply the tip credit provisions. This means that if an employee receives less than $30 per month in tips, the employer must pay the employee the standard minimum wage, $7.25 per hour. That distinction matters, as it affects the employer’s obligations under the FLSA.

    When the Answer is NO

    The FLSA prohibits employers from paying tipped workers less than the standard minimum wage, $7.25 per hour, if the employee’s tips do not make up the difference. Employers who violate the FLSA may face penalties, including back pay and fines, of up to $1,000 per violation. In plain terms, employers must pay tipped workers at least $7.25 per hour if the employee’s tips do not bring their hourly wage up to the standard minimum wage.

    The FLSA also sets a 3-year statute of limitations for employees to file complaints, and a $10,000 per year penalty for willful violations. This means that employers who intentionally violate the FLSA may face significant fines and penalties, in addition to back pay and other remedies. The court may also award liquidated damages, of up to $10,000 per year, for willful violations.

    The Process

    Employees who believe that their employer has violated the FLSA can file a complaint with the Wage and Hour Division (WHD) of the U.S. Department of Labor. The WHD will investigate the complaint, and may require the employer to pay back pay and fines, of up to $1,000 per violation. In practice, this means that employees must provide detailed information about their wages and tips, and must cooperate with the WHD investigation.

    The FLSA also requires employers to keep accurate records of employee tips and wages, and to provide employees with written notice of the tip credit provisions. Employers must also post a notice in the workplace, informing employees about the minimum wage law and the tip credit provisions. The notice must include the following information: the minimum wage rate, the tip credit provisions, and the employee’s rights under the FLSA.

    In plain terms, employees who believe that their employer has violated the FLSA must file a complaint with the WHD, and must provide detailed information about their wages and tips. The WHD will investigate the complaint, and may require the employer to pay back pay and fines, in addition to other remedies.

    State-by-State Variation

    Some states, such as California and New York, have higher minimum wage rates than the federal rate, $7.25 per hour. California, for example, sets a minimum wage rate of $14 per hour, while New York sets a minimum wage rate of $12.50 per hour. Other states, such as Texas and Florida, have lower minimum wage rates, or no state minimum wage rate at all.

    Some states, such as Washington and Oregon, also have different tip credit provisions than the FLSA. Washington, for example, sets a 40% tip credit provision, while Oregon sets a 30% tip credit provision. This means that employers in these states must pay tipped workers a higher wage, or provide a higher tip credit, than employers in other states.

    Special Situations or Exceptions

    Exempt Employees

    Certain employees, such as executive and administrative employees, are exempt from the FLSA minimum wage and overtime provisions. These employees must meet specific requirements, such as earning a salary of at least $35,568 per year, and performing specific duties, such as managing a department or supervising employees.

    In practice, this means that employers must carefully classify employees as exempt or non-exempt, and must ensure that exempt employees meet the specific requirements. The FLSA sets a $100,000 per year penalty for willful violations of the exemption provisions.

    Tipped Employees

    Tipped employees, such as restaurant and bar employees, are subject to the FLSA tip credit provisions. These provisions allow employers to apply a portion of the employee’s tips towards the minimum wage requirement, but require employers to pay tipped workers at least $2.13 per hour.

    The FLSA also sets a 80/20 rule, where 80% of an employee’s time must be spent on tip-generating activities, and 20% on non-tipped work, to qualify for the lower wage. This means that employers must carefully track employee time and tips, and must ensure that tipped employees meet the specific requirements.

    Enforcement and Consequences

    The FLSA is enforced by the Wage and Hour Division (WHD) of the U.S. Department of Labor, which investigates complaints and requires employers to pay back pay and fines, of up to $1,000 per violation. The WHD also conducts regular audits and inspections, to ensure that employers are complying with the FLSA.

    In practice, this means that employers must be prepared to provide detailed information about their wage and hour practices, and must cooperate with WHD investigations. The FLSA sets a 3-year statute of limitations for employees to file complaints, and a $10,000 per year penalty for willful violations. The court may also award liquidated damages, of up to $10,000 per year, for willful violations.

    1. U.S. Department of Labor. relevant wage or leave regulation
    2. U.S. Equal Employment Opportunity Commission. workplace discrimination guidance
    3. Office of the Law Revision Counsel. relevant federal employment statute
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