| State Minimum Wage Required | $7.25 / hr |
| Maximum Allowed Tip Credit | $5.12 / hr |
| Minimum Cash Wage Employer Must Pay | $2.13 / hr |
| Basic Employer Cash Earnings | $85.20 |
| Reported Tips Earned | $300.00 |
| Tip Credit Makeup Pay (Owed by Employer) | $0.00 |
Under the **Fair Labor Standards Act (FLSA)**, a tipped employee is defined as any worker engaged in an occupation in which they customarily and regularly receive more than $30 a month in tips.
The Federal Tip Credit System:
Federal law allows employers to claim a **tip credit** of up to **$5.12 per hour** toward their minimum wage obligations.
• Federal Minimum Wage = **$7.25 per hour**.
• Maximum Tip Credit = **$5.12 per hour**.
• Minimum Cash Wage Required = **$2.13 per hour** ($7.25 - $5.12).
If an employee's cash wage ($2.13/hr) plus the tips they actually earned during a workweek do not equal the minimum wage ($7.25/hr), the employer **must pay the difference** to make up the shortfall. This is known as **Tip Credit Makeup Pay** or **Tip Cash Supplement**.
For example, if you work 10 hours and earn only $10.00 in tips:
• Cash wage from employer = 10 hours × $2.13 = $21.30.
• Total pay earned = $21.30 cash + $10.00 tips = $31.30.
• Legally required minimum wage = 10 hours × $7.25 = $72.50.
• **Shortfall owed by employer** = $72.50 - $31.30 = **$41.20**.
Several states have completely banned the tip credit, meaning employers must pay tipped employees the **full state minimum wage** in cash, regardless of how much they earn in tips:
• **California:** Minimum wage is $16.00/hr, tip credit is 0%.
• **Oregon:** Minimum wage is $14.20/hr+, tip credit is 0%.
• **Washington:** Minimum wage is $16.28/hr, tip credit is 0%.
• **Nevada:** Minimum wage is $12.00/hr, tip credit is 0%.