This is a math aid, not legal advice. It uses the federal figures in effect as of November 2026. Many states and some cities set a higher minimum wage, a higher cash wage, a smaller tip credit or no tip credit at all, and the rule that's better for the employee applies. Check your state labor department before you set pay.
The federal numbers
| Item | Federal amount |
|---|---|
| Minimum wage | $7.25 an hour |
| Minimum cash wage for tipped employees | $2.13 an hour |
| Maximum tip credit | $5.12 an hour |
| Tipped employee threshold | More than $30 a month in tips |
The tip credit is the gap between the minimum wage and the cash wage you pay, capped at $5.12. If you pay $3.00 an hour in cash, your credit is $4.25.
How the calculator checks a week
- It works out your tip credit per hour: minimum wage minus cash wage, but no more than the maximum credit you entered.
- It calculates cash wages owed: the cash wage for tipped hours, 1.5 times the minimum wage minus the credit for tipped overtime hours, and the full minimum wage for any hours in a non-tipped job.
- It compares the employee's tips with the total tip credit claimed for the week. If tips fall short, the difference is make-up pay you owe.
- It reports total employer pay and the employee's earnings per hour with tips.
Federal law measures minimum wage by the workweek, so the calculator works one week at a time.
Worked examples
A good week. A server works 32 hours, all in the tipped job, at $2.13 an hour, and keeps $420 in tips. The credit is $5.12 an hour, or $163.84 for the week, and tips easily cover it. Cash wages owed are $68.16, no make-up pay is due, and the server earned about $15.25 an hour with tips.
A slow week. Same server, same hours, but tips are only $120. The tip credit claimed would be $163.84, so tips fall $43.84 short. You owe that as make-up pay, which brings the week to exactly $7.25 an hour for 32 hours.
A week with overtime and a non-tipped shift. A bartender works 40 tipped hours, 5 tipped overtime hours and one 6-hour shift in the kitchen. The 40 hours pay $2.13 in cash, each overtime hour pays at least $5.755 in cash, and the kitchen shift pays the full $7.25 because the tip credit doesn't apply to a non-tipped occupation. That's $85.20 + $28.78 + $43.50 = $157.48 in cash wages, plus make-up pay if tips fall below the $230.40 credit for the 45 tipped hours.
Related duties and the dual jobs rule
Tipped employees often do some side work, like rolling silverware, refilling ice or wiping tables. For several years federal rules set specific limits on that work, known as the 80/20 and 30-minute rule. A federal appeals court vacated that rule in 2024, and the Department of Labor restored its older dual jobs regulation. In October 2026 it also withdrew older opinion letters on related duties and said it is preparing a new proposed rule. Our article on the DOL tipped employee rules walks through the history and what it means for scheduling side work.
Records to keep
Keep weekly records of hours in tipped and non-tipped work, cash wages paid, the tip credit claimed, and tips reported by each employee. If you use a tip pool, keep a written description of who's in it and how shares are calculated. Download the CSV for each week you check by hand and file it with payroll.
Frequently asked questions
What is the federal tip credit?
Under the Fair Labor Standards Act, an employer can pay a tipped employee a cash wage of at least $2.13 an hour and count up to $5.12 an hour of the employee's tips toward the $7.25 federal minimum wage. If the cash wage plus tips doesn't reach $7.25 for every hour, the employer has to make up the difference.
Who counts as a tipped employee?
Under federal law, an employee who customarily and regularly receives more than $30 a month in tips. Servers, bartenders and bussers often qualify. The tip credit applies only to hours spent in the tipped occupation.
Do states have different tip credit rules?
Yes. Some states, including California, Washington and several others, don't allow any tip credit, so tipped employees get the full state minimum wage before tips. Many others allow a smaller credit or require a higher cash wage than $2.13. Where state and federal law differ, the rule that gives the employee more applies.
How does overtime work for a tipped employee?
Overtime is based on the full minimum wage, not the cash wage. Under federal numbers, an overtime hour must pay at least 1.5 times $7.25, which is $10.875, and the employer can still take the same $5.12 credit, so the cash wage for an overtime hour is at least $5.755.
What must I do before taking a tip credit?
Federal rules require you to inform tipped employees in advance about the tip credit, including the cash wage, the amount of the credit, and that employees keep all their tips except for a valid tip pool. Employees also have to actually receive at least the amount of the credit in tips.
Can managers share in the tip pool?
Under federal law, managers and supervisors can't keep any part of employees' tips, whether or not the employer takes a tip credit. A tip pool can include back-of-house workers such as cooks and dishwashers only if the employer pays everyone the full minimum wage and takes no tip credit.