How Much to Pay Tipped Employees? That’s a Loaded Question

Payroll management can be complex for total rewards professionals in any organization. However, if your company — in the hotel, hospitality, food and beverage services, or other industry — has tipped employees, and if those employees and business operations span multiple states, the task can be even more so.

This article provides compliance data on violations for improperly compensated tipped workers. It also provides the latest total tipped minimum wage rates for applicable workers in all 50 states plus the District of Columbia. Regarding current legal pay rates, those “fully loaded” minimums account for the combination of minimum cash wage and maximum tip credit.

Access a Workspan Daily article on this subject

• Wage-and-Hour Compliance: You Are Either Fine or Fined

Access bonus Workspan Daily Plus+ articles on this subject:

• 3 Pitfalls that Can Lead to Tipped Employee Pay Violations
• Guidance on How to Avoid Common FLSA Classification Errors

Compliance Is Always a Good Tip

Compliance with federal and state wage-and-hour laws is good business and operational practice since fair, equitable and legally based compensation generally translates into a more satisfied, engaged, motivated and loyal workforce. Compliance slip-ups can mean lawsuits, investigations and fines — plus reputational damage with current and future workers.

In industry sectors with tipped employees (defined under the Fair Labor Standards Act as “any employee engaged in an occupation in which [the employee] customarily and regularly receives more than $30 a month in tips), wage-and-hour violations commonly occur when employers:

• Force employees to share tips (i.e., requiring servers to give a percentage of their tips to the establishment, or allowing managers and supervisors to participate in the tip pool)
• Keep tips (i.e., failing to pay tipped employees the federal minimum wage or pocketing workers’ credit card tips)
• Don’t pay overtime (i.e., failing to pay overtime based on the regular hourly rate or failing to pay overtime that includes service charges, commissions and bonuses)

At the federal level alone, in 2024, the U.S. Department of Labor’s Wage and Hour Division (WHD) rang up employers for tip-related violations to the tune of $7.4 million in back wages (covering 10,651 workers). That dollar figure was 68% higher than in 2023 ($4.4 million in back wages), and the affected worker number was 60% higher (6,645 workers).

Recent news stories on the WHD website chronicled:

• $823,000 in pay recovery and damages for 177 employees of a Michigan-based Mexican restaurant chain
• $158,000 in pay recovery and damages for 14 employees of two Honolulu restaurants
• $66,000 in pay recovery and damages for 13 employees of an Oklahoma City barbeque restaurant

Overtime, minimum-wage, retaliation and child-labor violations are listed separately in the WHD annual data. Employers cited by authorities for bad tip practices can face a double or triple whammy when other rule and regulation categories are factored in.

The WHD provides employers guidance regarding correctly compensating tipped employees in a related Fact Sheet.

State Figures Are All Over the Board

One way or another, all American workers must receive compensation that at least meets the federal minimum wage of $7.25 per hour or the minimum wage in the state that person is working — whichever is the higher amount.

Currently:

• 30 states (plus the District of Columbia) have a minimum wage rate that exceeds the federal rate.
• 12 states have minimum wages that match the federal rate.
• 5 states (Alabama, Louisiana, Mississippi, South Carolina and Tennessee) have not adopted a state minimum wage.
• 3 states (Georgia, Oklahoma and Wyoming) have a minimum wage below $7.25 per hour.

For the eight states in the last two bullet points, the federal minimum wage of $7.25 per hour generally applies.

When factoring a “fully loaded” minimum wage rate for a tipped employee in a given state, that total rate generally combines a minimum cash wage and a maximum tip credit. Many states have a unique value for one or both of those categories.

Therefore, use the table below to identify the current “fully loaded” minimum wage rate and rate components for any state in which you have tipped employees.

* = State will increase minimum wage by $1 every year on Sept. 30 until it reaches $15.00 on Sept. 30, 2026.

** = States have no state minimum wage laws (Georgia has one, but it does not extend to tipped employees).

*** = State law says, “The combined amount the employee receives from the employer and in tips must be at least $7.00 more than the applicable minimum wage.”

**** = In these states, FLSA-subjected employees are excluded from state minimum wage laws; employers, though, must ensure these employees are paid at least the federal minimum wage of $7.25 per hour.

Editor’s Note: Additional Content

For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics:

• Employee Compensation
• Total Rewards
• Finance and Budgeting