Tip credit calculator

Check whether a tipped employee’s cash wage plus tips reaches the minimum wage for the week, and any shortfall the employer must pay.

In shortTip credit = (minimum wage − cash wage) × hours. If tips for the week are less than the tip credit, the employer pays the difference. Under federal rules the cash wage is at least $2.13 and the minimum wage is $7.25, so the credit is up to $5.12 an hour.

Who uses itRestaurant owners, payroll staff and servers
WhenEach workweek a tip credit is taken
You needHours, cash wage, minimum wage and the week’s tips
ResultCredit used and any top-up the employer owes

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How the tip credit is calculated

Tip credit = (minimum wage − cash wage) × hours.

Shortfall = tip credit − tips, if tips are lower.

Tip credit with real numbers

A server works 40 hours at a $2.13 cash wage under the $7.25 federal minimum. The tip credit is $204.80. With $250 in tips, the minimum is met. In a slow week with $150 in tips, the employer must pay $54.80 more.

When a tip credit helps

Federal law lets employers count part of tips toward minimum wage for tipped employees, if conditions such as notice to employees are met. Many states set higher cash wages, and some do not allow a tip credit at all.

This calculator covers weeks of up to 40 hours. Overtime for tipped employees is calculated on the full minimum wage, so check the overtime calculation separately.

Another tip credit example

Suppose a state minimum wage of $10.00 that allows a $5.00 cash wage for tipped staff. A server works 32 hours and receives $118 in tips. Cash wages are $160.00 and the tip credit taken is $160.00. The minimum for the week is $320.00, but cash wages plus tips are only $278.00, so the employer must pay a $42.00 shortfall.

Making sense of the tip credit number

The shortfall is what it takes to bring cash wages plus tips up to the minimum for the week’s hours; if it shows minimum wage met, tips covered the credit. Use the tips the employee kept after any valid tip pool, and leave out service charges, which are not tips. Overtime hours are not handled here, and the cash wage for those hours must be figured from the full minimum wage.

Common mistakes to avoid

Using the federal minimum in a state or city with a higher one. Enter the local minimum wage and cash wage that apply.
Counting tips the server paid out to bussers and bartenders. Use the tips the employee actually kept after tip-outs.
Taking the credit for long stretches of non-tipped work, such as a full prep shift. Pay those hours at the full minimum wage.

Adapt it to your team

Hotels and banquetsKeep mandatory service charges out of tips, since they are not tips and cannot count toward the credit.

Salons and car washesCheck whether your state allows a tip credit for these jobs at all before using it.

Pro tipKeep the signed tip credit notice in each employee’s file. It is one of the first documents an investigator asks for.

Questions about the tip credit calculator

Does every state allow a tip credit?

No. Some require the full minimum wage before tips.

What conditions apply?

Notice to employees and that they keep their tips, among others.

Can managers share in tips?

Managers and supervisors may not keep employees’ tips under federal law.

How about overtime?

Overtime is based on the full minimum wage; calculate it separately.

Is the minimum wage check done per shift or per week?

Under federal rules it is done for each workweek, which is how this calculator works: cash wages plus tips must reach the minimum for all hours in the week. Some states and cities set different rules, so check local law.

What if an employee does tipped and non-tipped work in the same week?

Enter only the hours worked in the tipped job, and pay the non-tipped hours at the full minimum wage or more. Mixing them makes the tip credit look larger than it may lawfully be.

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General information and an estimate only. It is not legal or payroll advice. Tip credit rules differ by state and change over time. Check current federal and state rules with a qualified professional.