Tip Credit Calculator
Work out the FLSA tip credit, your effective hourly rate, and any makeup pay an employer owes when tips plus cash wage come up short of minimum wage.
Tip Credit Calculator
Scenario Presets
Direct Cash Wage
Cash paid by the employer before tips. The federal floor is $2.13/hr; many states require more.
Heads up: $2.13/hr is the federal minimum direct cash wage. A lower figure is below the federal floor.
Applicable Minimum Wage
The federal minimum is $7.25/hr. Enter your state or local rate if it is higher.
Hours Worked This Week
Total Tips This Week
Tips the employee actually keeps after any valid tip pool, for this one workweek.
Compared with the federal $5.12 maximum tip credit.
Estimates only, measured for one workweek. Tips cannot be averaged across pay periods. This is not tax or legal advice.
Log Tipped Shifts as You Work Them
Timeclock44 keeps a running record of your hours and shifts, so the tip credit math runs on real workweek data instead of memory. Download the app to track every shift.
How the tip credit works under the FLSA
A tip credit is the gap an employer is allowed to fill with tips instead of cash. Under the Fair Labor Standards Act, an employer can pay tipped employees a direct cash wage below the full minimum wage, then count part of the worker's tips toward the rest. Federally, the numbers are straightforward: the minimum wage is $7.25 per hour, the direct cash wage floor is $2.13 per hour, and the difference, $5.12 per hour, is the maximum federal tip credit.
There is a hard limit on the credit. It can never exceed the tips the employee actually received during the workweek. If a server has a slow week and keeps fewer tips than the maximum credit, the employer can only claim the smaller amount. The credit also requires the employee to keep the tips (subject to a valid tip pool) and to be told the employer is taking it.
How to calculate tip credit and makeup pay
This calculator uses four inputs: the direct cash wage, the applicable minimum wage, hours worked in the workweek, and total tips kept that week. From those it works out the maximum credit ($7.25 minus $2.13 equals $5.12 at the federal level), the tips earned per hour (total tips divided by hours), and the tip credit actually claimed, which is whichever of those two is smaller.
Worked example: a server is paid $2.13/hr, works 40 hours, and keeps $350 in tips. Tips per hour are $350 divided by 40, which is $8.75. The effective hourly rate is $2.13 plus $8.75, which is $10.88, well above $7.25, so the minimum wage test passes and no makeup pay is owed. If that same server only kept $150 in tips, tips per hour would be $3.75, the effective rate would be $5.88, and the employer would owe makeup pay of ($7.25 minus $5.88) times 40 hours, which is $54.80 for the workweek.
Tip credit rules by state
Federal rules are only the floor. Many states set a higher tipped minimum wage, a higher required cash wage, or both, and some cities add local rates on top. For that reason, enter your own applicable minimum wage rather than relying on the $7.25 default.
Seven One Fair Wage states allow no tip credit at all and require the full minimum wage in cash before tips: Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. In those states, set the cash wage equal to the minimum wage (the One Fair Wage state preset does this), and the maximum tip credit will correctly show as zero.
Tipped employees and overtime
Overtime for tipped workers is not based on the low cash wage. The FLSA bases overtime on the full applicable minimum wage: the overtime rate is 1.5 times the full minimum wage, and the employer may still apply the tip credit against that figure. This catches both workers and employers off guard. To run those numbers, use the Overtime Calculator or the Regular Rate of Pay Calculator, and the Timecard Calculator for adding up the hours first.
Disclaimer: This calculator provides estimates based on the figures you enter and is not tax or legal advice. Tip credit rules vary by state and locality. Check current Department of Labor guidance and your state labor agency, or talk to an employment attorney, for your specific situation.
Frequently Asked Questions
Common questions about tip credit calculator
What is a tip credit and how does it work?
A tip credit lets an employer count part of an employee's tips toward the minimum wage. Rather than paying the full minimum wage in cash, the employer pays a lower direct cash wage and treats the tips the worker keeps as the rest. The credit is the gap between the direct cash wage and the applicable minimum wage, and it can never be larger than the tips the employee actually received during the workweek (DOL Fact Sheet #15).
What is the maximum tip credit an employer can take under federal law?
The federal maximum tip credit is $5.12 per hour. That figure is the difference between the federal minimum wage of $7.25 and the federal direct cash wage of $2.13 ($7.25 minus $2.13 equals $5.12). If your state sets a higher minimum wage or a higher cash wage, the maximum credit there will be different, so enter your applicable rates above.
How do I calculate the tip credit per hour?
Subtract the direct cash wage from the applicable minimum wage to get the maximum credit. Then divide total weekly tips by hours worked to get tips per hour. The tip credit actually claimed is the smaller of those two numbers, since the credit cannot exceed the tips actually received. This calculator handles both steps for you.
What happens if my tips plus cash wage don't reach minimum wage?
The employer has to make up the difference. If the cash wage plus tips per hour land below the applicable minimum wage for the workweek, the employer owes makeup pay equal to the shortfall times hours worked. The Minimum wage met? badge above switches to a fail state and the Makeup pay owed line shows the amount due.
Is the tip credit calculated per shift, per day, or per workweek?
The tip credit and the minimum wage test are measured by the workweek, not per shift or per day. A workweek is a fixed, recurring 168-hour period. Tips from a busy night cannot be averaged against a slow night in a different workweek. Enter one workweek of hours and tips for an accurate result.
Which states do not allow a tip credit?
Seven One Fair Wage states require employers to pay the full minimum wage in cash before tips: Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. In those states there is no tip credit, so set the cash wage equal to the minimum wage (the One Fair Wage state preset does this). Plenty of other states allow a credit but set a higher tipped minimum wage than the federal floor.
What is the federal tipped minimum wage (direct cash wage)?
The federal direct cash wage for tipped employees is $2.13 per hour. That is the minimum an employer can pay in cash when claiming a tip credit, and it has not changed since 1991. Many states require a higher cash wage, so treat the $2.13 default here as a federal floor rather than a nationwide rate.
Does the tip credit affect how overtime is calculated for tipped employees?
Overtime for tipped employees is based on the full applicable minimum wage, not the lower cash wage. The overtime rate is 1.5 times the full minimum wage, and the employer may still apply the tip credit against it. To run the numbers, use the Overtime Calculator or the Regular Rate of Pay Calculator.