How the FLSA Tip Credit Works for Tipped Employees

Updated November 13, 2026 · JobPayRaise editors

How the FLSA tip credit works for tipped employees

In restaurants, hotels, and other tip-based jobs, an employer may be allowed to count a limited amount of an employee’s tips toward the federal minimum wage. That is the tip credit. It is not automatic, and it is not a license to keep an employee’s tips. The rules are in 29 U.S.C. 203(m) and in 29 CFR part 531.

Key takeaways

A ‘tipped employee’ is defined in the statute and regulations by reference to an employee engaged in an occupation in which the employee customarily and regularly receives more than $30 a month in tips, as explained in {TIP56}.
{TIP52} addresses the general restriction on an employer’s use of an employee’s tips.
{TIP51} and {TIP59} describe conditions for taking a tip credit, including that the employer may take a tip credit only if the employee has been informed of the provisions of section 3(m) of the Act and other conditions in the current regulations.
If the cash wage plus tips are not enough to equal the full minimum wage, the employer must make up the difference. Read the current text of {USC203} and part 531 for the exact dollar figures and notice requirements. This is not legal advice, and some states do not allow a tip credit.

Who is a tipped employee

29 U.S.C. 203, definitions including section 203(m) includes the Act’s definition of a tipped employee and the statutory tip-credit language in section 203(m). 29 CFR 531.56, ‘more than $30 a month in tips’ is titled “‘More than $30 a month in tips'” and explains how that monthly tips test is applied in an occupation where employees customarily and regularly receive tips. An employee who does not meet that test is not a tipped employee for this purpose, and the employer cannot use a tip credit for that work.

Conditions for taking the credit

29 CFR 531.51, conditions for taking a tip credit is titled “Conditions for taking a tip credit against the minimum wage.” 29 CFR 531.59, the tip wage credit is titled “The tip wage credit.” Together with section 203(m), they require, among other things, that the employer inform the employee of the tip-credit provisions and that the employee keep the tips, except in a valid tip pool as the current regulations allow. 29 CFR 531.52, general restriction on use of tips states the general restriction on an employer’s use of tips. If those conditions are not met, the employer may not take the tip credit and must pay the full cash minimum wage.

The amount of the credit and the minimum cash wage that must be paid in addition to tips are set in the statute and regulations and can differ from state law. This article does not restate a dollar figure that may have been adjusted, or that your state may have replaced with a stricter rule. Read the current text and your state labor department’s rules.

When the employer has to make up the difference

The tip credit only works if cash wages plus tips equal at least the full federal minimum wage for the hours worked. If tips are slow and the total falls short, the employer is responsible for the difference. Keep your pay stubs and a simple tip log. This page is a guide to the federal regulations, not a substitute for a wage-and-hour lawyer or a state agency complaint process.