Tracking hours for servers, bartenders, and bussers is more involved than tracking hours for other hourly staff. If you take a tip credit, the hours on the time card don’t just determine pay. They also decide whether you’ve met minimum wage, how overtime is calculated, and whether you can defend your payroll if the Department of Labor or an employee asks questions.
This guide covers the basics of time tracking for tipped employees: how the federal tip credit works, how to record dual jobs when someone works both front and back of house, how overtime applies, and which records to keep.
This article is general information, not legal advice. Tip rules vary significantly by state, so confirm the rules where you operate.
Who counts as a tipped employee?
Under the Fair Labor Standards Act (FLSA), a tipped employee is someone who works in an occupation where they customarily and regularly receive more than $30 per month in tips. In restaurants, that usually includes servers, bartenders, bussers, runners, and some hosts. Cooks and dishwashers generally are not tipped employees, though rules about including them in tip pools depend on whether you take a tip credit.
Federal tip credit basics
Federal law allows employers to count part of an employee’s tips toward the minimum wage. This is called the tip credit.
- The federal minimum wage is $7.25 per hour.
- Employers can pay a tipped employee a cash wage as low as $2.13 per hour.
- The maximum federal tip credit is therefore $5.12 per hour.
- If the cash wage plus tips doesn’t reach at least $7.25 for every hour worked in the workweek, the employer must make up the difference.
To take a tip credit, employers must also give tipped employees advance notice of how the tip credit works, including the cash wage, the amount of the credit, and that employees keep all their tips except through a valid tip pool. Managers and supervisors generally can’t keep any portion of employees’ tips.
State rules often differ
Many states require a higher cash wage than $2.13, and several, including California, Oregon, Washington, Minnesota, Nevada, Alaska, and Montana, don’t allow a tip credit at all, so tipped employees must receive the full state minimum wage before tips. Some cities have their own minimum wages as well. Always use whichever rule is most favorable to the employee.
Why accurate hours matter so much for tipped staff
The tip credit is calculated per hour, so the hours on the time card drive the whole calculation. Errors show up quickly:
- Undercounted hours make the tip credit look like it covers minimum wage when it doesn’t.
- Shift-level tip records without matching hours make it hard to prove you met minimum wage for the week.
- Unrecorded side work before opening or after close is still time worked and must be paid.
Worked example: checking the minimum wage
A server in a state that follows the federal rules works 30 hours and receives $150 in tips that week, with a cash wage of $2.13.
- Required minimum: 30 x $7.25 = $217.50
- Cash wages paid: 30 x $2.13 = $63.90
- Cash wages plus tips: $63.90 + $150.00 = $213.90
- Shortfall: $217.50 – $213.90 = $3.60, which the employer must pay
You can only run this check if hours and tips are both recorded accurately for the workweek.
Dual jobs: front of house and back of house
In small restaurants, people often work more than one role. A server might cover a dish shift, or a bartender might help in the kitchen. Under federal rules, when an employee works in two different occupations, one tipped and one not, the tip credit can only be applied to the hours in the tipped occupation. Hours in the non-tipped job must be paid at the full minimum wage or higher.
Federal guidance on “related duties,” such as rolling silverware or cleaning a server station, has shifted in recent years. A 2021 Department of Labor rule that limited how much time tipped employees could spend on non-tipped related duties was struck down by a federal appeals court in 2024. Some states have their own rules. Check current guidance with your payroll provider or employment attorney.
How to track dual jobs in practice
- Set up separate roles in your time tracking system, such as “Server” and “Dishwasher.”
- Have employees select the correct role when they clock in, or clock out of one role and into another when switching mid-shift.
- Assign the correct pay rate to each role.
- Review role-level hours before each payroll run.
EZTime tracks hours by role or project, so one employee’s server hours and kitchen hours stay separate in your payroll export.
Overtime for tipped employees
Tipped employees are entitled to overtime like any other non-exempt employee: at least 1.5 times the regular rate for hours over 40 in a workweek. The calculation is where many employers go wrong.
When you take a tip credit, overtime is based on the full minimum wage, not the cash wage. The tip credit amount doesn’t increase for overtime hours. Under the federal numbers:
| Item | Amount |
|---|---|
| Full minimum wage | $7.25 |
| Overtime rate (1.5 x $7.25) | $10.875 |
| Maximum tip credit | $5.12 |
| Minimum cash wage per overtime hour | $5.755 (about $5.76) |
A common mistake is to multiply $2.13 by 1.5 and pay about $3.20 per overtime hour. That underpays the employee. If your state requires a higher minimum wage or cash wage, the numbers change. Read our overview of FLSA overtime rules, and use the overtime calculator to check your figures.
Overtime alerts help you avoid surprises. EZTime notifies managers before an employee reaches 40 hours so you can adjust the schedule or plan for the cost.
Record-keeping for tipped employees
The FLSA requires employers to keep certain payroll records for at least three years, and time cards and other supporting records for at least two. For tipped employees taking a tip credit, records should also show:
- That the employee is a tipped employee
- Weekly or monthly tips the employee reports
- The amount of tip credit taken
- Hours worked each workday in tipped occupations and in non-tipped occupations
- Hours worked each workweek and straight-time and overtime pay
Paper sign-in sheets and handwritten tip logs make this hard to maintain. A digital time clock gives you timestamped punches, role-level hours, and an audit trail for corrections.
Practical setup checklist for restaurants
- Confirm your state and local minimum wage and whether a tip credit is allowed.
- Provide written tip credit notice to every tipped employee before taking the credit.
- Set up roles for each tipped and non-tipped position with the correct pay rates.
- Have employees clock in and out for every shift, including side work and meetings.
- Record meal breaks accurately. Don’t auto-deduct breaks that weren’t taken.
- Collect tip reports each shift or pay period.
- Check each tipped employee’s weekly total against minimum wage.
- Calculate overtime from the full minimum wage, not the cash wage.
- Keep records for the required periods.
For scheduling ideas, see our guide to restaurant scheduling software, and visit the EZTime for restaurants page to see how time tracking and scheduling work together.
Running a hospitality business with more than one department? Our guides to restaurant scheduling software and hotel employee scheduling cover how to plan shifts before the hours are recorded.
Simplify tipped employee time tracking
EZTime gives your restaurant a tablet kiosk or mobile time clock, role-based hours, break tracking, overtime alerts, and payroll-ready Excel and PDF exports. Start your 14-day free trial with no credit card required, or view pricing starting at $2 per employee per month.
Frequently asked questions
What is the minimum cash wage for tipped employees?
Under federal law, it is $2.13 per hour, as long as tips bring the employee to at least $7.25 per hour. Many states require a higher cash wage, and some don’t allow a tip credit at all.
How is overtime calculated for tipped employees?
Overtime is based on the full minimum wage. Federally, that’s 1.5 x $7.25 = $10.875 per hour, minus the $5.12 tip credit, for a minimum cash wage of about $5.76 per overtime hour.
Can I pay the tipped wage when a server works in the kitchen?
Generally no. Under federal rules, hours spent in a separate non-tipped occupation, such as dishwashing, must be paid at the full minimum wage. Track those hours under a separate role.
What records should I keep for tipped employees?
Keep hours worked each day and week, hours in tipped versus non-tipped roles, tips reported, the tip credit taken, and wages paid. Federal law requires payroll records for at least three years.
Can managers share in the tip pool?
Under federal law, managers and supervisors can’t keep any portion of employees’ tips. Rules about who else can join a tip pool depend on whether you take a tip credit and on your state’s laws.