Minimum Wage for Tipped Employees by State

For a small business or medium-sized business, managing payroll, time & attendance, and scheduling can be a daunting and multifaceted process, especially when considering compliance concerns.

One key component of this process is staying up to date on the latest changes to local and state minimum wage requirements, including tipped minimum wage rates and labor laws for tipped workers. This is particularly important for restaurants, franchises, and other businesses navigating hospitality industry wage regulations.

Here, we’ll provide you with a comprehensive overview of labor laws for tipped workers, including tipped employee wages by state, and the most up-to-date information on 2023 state-wise minimum wage requirements to help your business ensure compliance with state regulations.

What is a Tipped Employee? 

The federal definition of a tipped employee is any worker who consistently receives $30 or more per month in tips. Like many other compliance-related regulations, state standards for “tipped employees” vary greatly by state. Let’s explore the states where the tipped employee and minimum base wage thresholds are under or above the $30 per month federal standard.

First, there are six states without any state laws requiring a minimum wage for tipped employees. This includes the following states:

• Alabama
• Georgia
• Louisiana
• Mississippi 
• South Carolina
• Tennessee

In seven other states, workers only need to receive $20 per month in tips to be considered/designated tipped employees. This includes the following states:

• Arkansas
• Hawaii
• Illinois
• Massachusetts
• Kansas
• North Carolina
• Texas

Lastly, three states have established a minimum base wage (monthly tip amount to qualify as a tipped employee) that exceeds federal standards. In South Dakota, workers are considered tipped employees if they earn more than $35 in tips monthly, while in Vermont, the threshold is $120 per month. Uniquely, in Connecticut, full-time workers are considered tipped employees if they earn at least $10 weekly in tips while part-time restaurant and hotel employees qualify as tipped employees if they earn at least $2 daily in tips.

How Do Different States Calculate Tipped Minimum Wage?

Many states have established their own tipped minimum wage rate, which represents the lowest hourly amount an employee can earn. This includes an employer-paid basic cash wage as well as a “tip credit,” which employers can claim. Although the federal minimum base wage is set at $2.13 per hour, only a handful of states (outlined above) have adopted this approach, with many others mandating a higher level of pay. In fact, in certain states, employers are obligated to pay any tipped employee the full state minimum wage before tips. 

To help your business remain compliant with current state labor laws, we’ve created a reference table to catalog state minimum wage rate, maximum tip credit, and tipped minimum wage totals that apply to your jurisdiction in 2023.

*California - For local minimum wage regulations, read here.
*Florida - Through September 29, 2023. Minimum wage will raise On September 30.
*Georgia - Georgia has a state minimum wage law, but it does not apply to tipped employees.
*New York - Minimum wage for tipped food service workers.

What is the Hourly Wage for Tipped Employees? 

The federal minimum cash wage for tipped employees is set at $2.13 per hour and is mandated by the Fair Labor Standards Act (FLSA). Some states have adopted this federal standard, but most have mandated a higher hourly wage for tipped employees.

What is Tip Credit Against Minimum Wage?

Tipped employees must receive a wage of at least $2.13 per hour or more if their tips do not amount to the federal minimum wage of $7.25 per hour. In many circumstances, employers are eligible to claim a tip credit at a maximum of $5.12 per hour against the federal minimum wage. Under FLSA regulations, employers that claim tip credits must provide notice to their tipped employees when they make this claim and accurately document each employee’s weekly receipt of federal minimum wage.

Payroll and Compliance Peace of Mind

Understanding current wage laws in your state is just one part of the compliance process. Local, state, and federal labor regulations vary greatly by jurisdiction and change frequently – sometimes within the same calendar year. When you’re operating a fast-paced business in the hospitality industry, it’s easy to lose track of these concerns and risk penalties, fines, or liability issues due to unintended compliance violations.

To ensure long-term compliance and HCM efficiency, streamline your process with our comprehensive payroll solutions. We provide all the tools and expert support you need to simplify and integrate payroll, scheduling, time & attendance, and other HCM processes. Enjoy a free consultation to learn how we can help you enjoy simple and intuitive payroll. 

DISCLAIMER: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting, or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.