The Tip Credit Provisions of the Fair Labor
Standards Act (FLSA): In Brief

David H. Bradley
Specialist in Labor Economics
March 27, 2014
Congressional Research Service
7-5700
www.crs.gov
R43445


The Tip Credit Provisions of the Fair Labor Standards Act (FLSA): In Brief

Summary
The Fair Labor Standards Act (FLSA), enacted in 1938 (P.L. 75-718), is the federal legislation
that establishes the general minimum wage that must be paid to all covered workers. In 1966,
Congress amended the FLSA to add a “tip credit” provision to the minimum wage provisions.
These amendments, which apply to “tipped workers,” do not change the guaranteed minimum
wage of $7.25 per hour but they allow a combination of earnings from employer cash wages and
employee tips to equal the federal minimum wage (currently $7.25 per hour). That is, the “credit”
is the amount from employee tips that an employer may count against his or her liability for the
required payment of the full federal minimum wage. Under the current federal minimum wage
and the current required minimum employer cash wage, the maximum tip credit is $5.12 per hour
(i.e., $7.25 minus $2.13). Thus, all workers covered under the tip credit provision of the FLSA are
guaranteed the federal minimum wage but tipped workers receive some of this income from
employers and some from tips.
From the introduction of the tip credit provisions in 1966 through 1996, the amounts for the
minimum employer cash wage and tip credit were set as a percentage of the minimum wage,
ranging from 40% to 60%. That is, during that 40-year period, employers of tipped employees
could take a credit from tip earnings of between 40% and 60% of the federal minimum wage
against their liability to provide the minimum wage to their employees.
The 1996 FLSA amendments changed the tip credit provisions to set the employer’s statutory
minimum cash wage obligation to a dollar amount ($2.13 per hour), rather than a percentage of
the minimum wage. The maximum tip credit thereafter became the difference between $2.13 and
the federal minimum wage. If the tip credit continues to be set by reference to a fixed dollar
amount, rather than as a percentage of the minimum wage rate, the tip credit percentage of the
guaranteed minimum wage will continue to increase and the employer cash wage percentage will
continue to decrease if and when the federal minimum wage increases. With the minimum wage
increase in 2007, the tip credit increased to its current level of 71%. Thus, under the current
federal minimum wage of $7.25 per hour employers are required to pay a minimum cash wage of
$2.13 per hour (29% of the federal minimum wage) and may take up to $5.12 per hour (71% of
the federal minimum wage) as a credit against their liability to provide the full minimum wage of
$7.25 per hour.
In the 113th Congress, legislation has been introduced that would amend the FLSA to alter the
payment structure for tipped employees. Specifically, the most common proposed changes in the
different bills would increase the required employer contribution from the current level of $2.13
per hour to 70% of the prevailing federal minimum wage rate and would thus reduce the tip credit
to 30% of the federal minimum wage.
Several states have minimum wage rates that are different (mostly higher) than the federal
minimum wage and different tip credit provisions. Of the 50 states and Washington DC, seven do
not allow a tip credit, while the other 44 have a range of tip credit provisions, most of which
require a minimum employer cash wage higher than the federal rate of $2.13 per hour. In cases in
which states enact more protective minimum wage laws (i.e., higher minimum wage, lower tip
credit), the employee is entitled to the provisions of state law.

Congressional Research Service

The Tip Credit Provisions of the Fair Labor Standards Act (FLSA): In Brief

Contents
The Fair Labor Standards Act (FLSA) and the Minimum Wage ..................................................... 1
History and Mechanics of Tip Credit Provisions ............................................................................. 1
Illustrative Examples of the Tip Credit Provisions of the FLSA ..................................................... 4
Proposed Changes to Tip Credit Provisions..................................................................................... 5
Interaction with State Minimum Wage Provisions .......................................................................... 7

Tables
Table 1. Evolution of the Tip Credit Provisions of the FLSA .......................................................... 3
Table 2. Federal Minimum Wages for Tipped Employees ............................................................... 4
Table 3. Employer Cash Wages and Tip Credits Required Under Recent Proposals ....................... 6
Table 4. Tip Credit Provisions in Effect in the States ...................................................................... 8

Contacts
Author Contact Information........................................................................................................... 11

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The Tip Credit Provisions of the Fair Labor Standards Act (FLSA): In Brief

The Fair Labor Standards Act (FLSA) and the
Minimum Wage

The FLSA, enacted in 1938 (P.L. 75-718), is the federal legislation that establishes the general
minimum wage that must be paid to all covered workers.1 At present, the vast majority of workers
are covered by the minimum wage provisions of the FLSA. The minimum wage provisions of the
FLSA have been amended numerous times since 1938, typically for the purpose of expanding
coverage or raising the wage rate. The most recent change was enacted in 2007 (P.L. 110-28) to
increase the minimum wage to $7.25 per hour by July 2009.
History and Mechanics of Tip Credit Provisions
Congress amended the FLSA in 1966 to add a “tip credit” provision to the minimum wage
provisions.2 Under Section 203(m) of the FLSA, a “tipped employee”—a worker who
“customarily and regularly receives more than $30 a month in tips”—may have his or her cash
wage from an employer reduced to $2.13 per hour, as long as the combination of tips and wages
from the employer equals the federal minimum wage (currently $7.25 per hour). That is, the
“credit” is the amount from employee tips that an employer may count against its liability for the
required payment of the full federal minimum wage. Under the current federal minimum wage
and the current required minimum employer cash wage, the maximum tip credit is $5.12 per hour
(i.e., $7.25 minus $2.13). Thus, all workers covered under the tip credit provision of the FLSA are
guaranteed the federal minimum wage.3
The tip credit provisions of the FLSA do not mean that a tipped worker may earn a subminimum
wage; rather the tip credit provisions change the composition of a worker’s earnings. Specifically,
the key concepts that comprise the tip credit provisions are the following:
• The “employer cash wage” is the minimum amount that an employer is required
to pay a tipped worker. Currently, the FLSA sets this amount at $2.13 per hour,
which is 29% of the current federal minimum wage of $7.25 per hour. An
employer of a tipped employee, just like an employer of any FLSA-covered
employee, is ultimately responsible for the payment of the full minimum wage to
that employee.
• The “tip credit” is the amount of earnings from tips that an employer may count
against its liability for the full minimum wage. Under current law and at the
current rate of $7.25 per hour, the maximum tip credit is $5.12 per hour, which
means employers may take a credit of up to 71% of their required obligation to
pay a minimum wage. A higher tip credit means that an employer may count

1 A full discussion of the coverage of the minimum wage is beyond the scope of this report. For an overview of the
FLSA minimum wage, see CRS Report R43089, The Federal Minimum Wage: In Brief, by David H. Bradley.
2 The description of the tip credit provisions in this report does not include implementation and administrative issues,
such as tip pooling and service charges on credit cards. For additional information on administrative provisions related
to tips, see http://www.dol.gov/whd/regs/compliance/whdfs15.pdf.
3 For employees working in states with a minimum wage different from that of the federal minimum wage, the
employee is entitled to the higher wage of the two.
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The Tip Credit Provisions of the Fair Labor Standards Act (FLSA): In Brief

more in tips toward the employer liability for the minimum wage. A lower tip
credit means that employers must provide a greater share of an employee’s
compensation in direct cash wages. No tip credit means that an employer must
pay direct cash wages equal to the minimum wage and the tipped worker does
not have to credit any tip income toward the total minimum wage.
• The existence of a tip credit thus means there are two components of the
minimum wage for tipped workers—employer cash wage and tips. The
combination of the employer cash wage and the tips must equal the required
minimum wage. The tip credit thus does not create a subminimum wage from the
standpoint of a tipped worker but it changes the composition of earnings from
solely employer pay to a combination of employer wages and tips. The exact mix
of those two earnings components depends on the minimum wage, tip credit
allowance, and the amount received in tips.
As shown in Table 1, the tip credit and cash wage proportions of the minimum wage have
changed over time as Congress has amended the FLSA. Prior to 1996, the amounts for the
minimum employer cash wage and tip credit were set as a percentage of the minimum wage and
ranged from 40% to 55% of the minimum wage. That is, during the 30 year period of 1966-1996,
employers of tipped employees could take a credit from tip earnings of between 40% and 55% of
the federal minimum wage against their liability to provide the minimum wage to their
employees.
The 1996 FLSA amendments set the employer’s statutory minimum cash wage at $2.13 per hour
(rather than a percentage of the minimum wage) and the size of the tip credit became dependent
on the value of the minimum wage (i.e., the tip credit after 1996 equals the minimum wage minus
$2.13). Specifically, P.L. 104-188 provided that the employer minimum would be 50% of the
minimum wage at the time that the legislation was enacted ($4.25). Thus, the 1996 amendments
locked into place the minimum employer cash wage at a fixed dollar amount rather than setting
the credit as a percentage of the minimum wage, which had been the practice since the tip credit
was enacted in 1966. If the tip credit continues to be set by reference to a fixed dollar amount,
rather than as a percentage of the minimum wage rate, the tip credit percentage of the guaranteed
minimum wage will continue to increase and the employer cash wage percentage will continue to
decrease if and when the federal minimum wage increases.
With the minimum wage increase in 2007, the tip credit began to increase to its current level of
71% of the minimum wage. Under the current federal minimum wage of $7.25 per hour,
employers are required to pay a minimum cash wage of $2.13 per hour (29% of the federal
minimum wage) and may take up to $5.12 per hour (71% of the federal minimum wage) as a
credit against their liability to provide the full minimum wage of $7.25 per hour.

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The Tip Credit Provisions of the Fair Labor Standards Act (FLSA): In Brief

Table 1. Evolution of the Tip Credit Provisions of the FLSA
Employer
Tip Credit as
Contribution
Minimum Wage
Employer
a % of the
as a % of the
Year and FLSA
at Effective
Tip Credit in
Cash Wage in
Minimum
Minimum
Amendment
Date
Current $
Current $
Wage
Wage
P.L.
89-601

1967 $1.40 $0.70 $0.70 50% 50%
1968
$1.60 $0.80 $0.80 50% 50%
P.L.
95-151

1978
$2.65 $1.33 $1.33 50% 50%
1979 $2.90 $1.30 $1.60 45% 55%
1980 $3.10 $1.24 $1.86 40% 60%
1981 $3.35 $1.34 $2.01 40% 60%
P.L.
101-157

1990 $3.80 $1.71 $2.09 45% 55%
1991 $4.25 $2.13 $2.13 50% 50%
P.L.
104-188

1996
$4.75 $2.62 $2.13 55% 45%
1997 $5.15 $3.02 $2.13 59% 41%
P.L.
110-28

2007
$5.85 $3.72 $2.13 64% 36%
2008 $6.55 $4.42 $2.13 67% 33%
2009 $7.25 $5.12 $2.13 71% 29%
Source: CRS analysis of P.L. 89-601 (enacted 1966), P.L. 95-151 (enacted 1977), P.L. 101-157 (enacted 1989),
P.L. 104-188 (enacted 1996), and P.L. 110-28 (enacted 2007).
Notes: The information in Table 1 is intended to summarize the evolution of the tip credit provisions and thus
primarily summarizes provisions of FLSA legislation that affected the tip credit amounts, rather than addressing
every change in the minimum wage rate. The first four public laws in Table 1 changed the tip credit provisions
related to the minimum wage. The fifth public law (P.L. 110-28) did not make changes to the tip credit but is
included to show the effects of the 1996 amendments that changed the tip credit from a percentage of the
minimum wage to a dollar amount. The italicized years in Table 1 indicate changes in the tip credit provisions
related to the previous public law. For example, P.L. 95-151 was enacted in 1977 but made changes to the
minimum wage that were effective in 1978, 1979, 1980, and 1981.
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The Tip Credit Provisions of the Fair Labor Standards Act (FLSA): In Brief

Illustrative Examples of the Tip Credit Provisions of
the FLSA

Data in Table 2 illustrate the functioning of the tip credit under the current provisions of the
FLSA.4 To illustrate the mechanics of the tip credit, tip amounts vary in each of the six scenarios.
For example, under the current minimum wage of $7.25 per hour, an employer initially would be
responsible for paying a tipped employee $2.13 per hour. The variation in employee tips would
then determine the actual amount of the tip credit and the relative proportions of the minimum
wage between employer cash wages and tips:
• If the employee made at least $5.12 per hour in tips, then the employer would
have no further cash wage obligations. Thus, the credit in this case would equal
$5.12 per hour. The employer’s cash wage ($2.13) would comprise at most 29%
of the employee’s hourly wage.
• If the employee earned less than $5.12 per hour in tips, the employer would be
responsible for making up the difference between the amount of the credit and
the statutory minimum wage. For example, if an employee received $1.00 per
hour in tips, the employer would be required to pay $4.12 per hour (in addition to
the minimum of $2.13 per hour). Under this scenario, the employer’s cash wage
($6.25) would comprise 86% of the employee’s hourly wage.
An employee’s total hourly wage, therefore, would depend on the amount, if any, above the
statutory minimum received in tips. Likewise, the employer’s ultimate required payment, and
thus share of the total federal minimum wage, would depend on the amount in tips that an
employee received. A tipped employee’s hourly earnings are thus a minimum of $7.25 per hour
until tips exceed $5.12 per hour. When tips exceed $5.12 per hour, the employee’s hourly
earnings are $2.13 plus the amount received in tips per hour.
Table 2. Federal Minimum Wages for Tipped Employees
Structure of Payment for Tipped Employees by Level of Tip
Employer
Cash Wage
Minimum
Additional
as % of
Employee’s
Federal
Cash Wage
Cash Wage
Total
Federal
Total
Minimum
Paid by
Employee
Paid by
Employer
Minimum
Hourly
Wage
Employer
Hourly Tip
Employer
Contribution
Wage
Earnings
$7.25 $2.13 $1.00 $4.12 $6.25 86% $7.25
$7.25 $2.13 $2.00 $3.12 $5.25 72% $7.25
$7.25 $2.13 $4.00 $1.12 $3.25 45% $7.25

4 Table 2 is for illustrative purposes to demonstrate the variations in the tip credit system. The scenarios in the table are
based on two assumptions. One, the tipped employee is working in a state in which the federal minimum wage is
applicable (i.e., the federal minimum wage equals or exceeds the state minimum wage in those states with minimum
wage laws). Two, the tipped employee is working in a state in which the full federal tip credit is allowed. In practice
the tip credit is more complex because of differences in state minimum wages and state tip credit allowances. The
impact of these differences is discussed later in this report.
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The Tip Credit Provisions of the Fair Labor Standards Act (FLSA): In Brief

Employer
Cash Wage
Minimum
Additional
as % of
Employee’s
Federal
Cash Wage
Cash Wage
Total
Federal
Total
Minimum
Paid by
Employee
Paid by
Employer
Minimum
Hourly
Wage
Employer
Hourly Tip
Employer
Contribution
Wage
Earnings
$7.25 $2.13 $5.12 $0.00 $2.13 29% $7.25
$7.25 $2.13 $6.00 $0.00 $2.13 29% $8.13
$7.25 $2.13 $10.00 $0.00 $2.13 29% $12.13
Source: CRS analysis of Section 203 (m) of the FLSA. Minimum wage as of January 1, 2014.
Note: Because Table 2 is intended to show the functioning of the tip credit provision, it is necessary to hold
the federal minimum wage ($7.25) and minimum cash wage ($2.13) constant.
Proposed Changes to Tip Credit Provisions
Legislation has been introduced in the 113th Congress that would amend Section 203(m)(1) of the
FLSA to alter the payment structure for tipped employees.5 Specifically, the most common
proposed changes included in several recent bills would increase the required employer
contribution from the current level of $2.13 per hour to 70% of the prevailing federal minimum
wage rate.6 This increase would occur in the following steps:
• The minimum employer contribution would increase to $3.00 per hour beginning
three months after enactment of the legislation;
• Thereafter, the minimum employer contribution would increase annually by the
lesser of $0.95 per hour or the amount necessary for the employer cash wage to
equal 70% of the federal minimum wage; and
• Once the 70% threshold was attained, the minimum employer cash wage would
increase annually to an amount necessary to maintain it at 70% of the current
federal minimum wage.
Because the recent proposed changes to the tip credit provisions have been included in bills that
would generally also increase the federal minimum wage, Table 3 provides an estimate of the
proposed tip credit provisions in all of the aforementioned recent bills under both the tip credit
provisions and the proposed increases in the federal minimum wage. Following an initial increase
from $2.13 to $3.00 per hour, the minimum employer cash wage would increase by $0.95 per
hour for four years. After that an additional $0.75 per hour increase would be necessary to make
the minimum employer cash wage equal to 70% of the federal minimum wage and to make the
tip credit equal to 30% of the minimum wage. Thereafter, the increase in the minimum employer

5 At least six bills that have been introduced in the 113th Congress—H.R. 650, H.R. 1010, H.R. 1346, H.R. 3746, S.
460, and S. 1737—would change the FLSA to increase the federal minimum wage rate, index the federal minimum
wage rate to a measure of inflation, and change the tip credit provisions of the minimum wage. The proposed changes
to the tip credit provisions in four of these bills (H.R. 1010, H.R. 3746, S. 460, and S. 1737) are identical. The
minimum wage rate increase and indexation proposals in the bills are not discussed in this report.
6 This proposal is included in four bills. The four bills (H.R. 1010, H.R. 3746, S. 460, and S. 1737) are identical with
the exception that S. 1737 would implement the increase to $3.00 per hour six months after enactment of the
legislation.
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The Tip Credit Provisions of the Fair Labor Standards Act (FLSA): In Brief

cash wage would depend on the value of the federal minimum wage but it would be required to
stay at 70% of the federal rate. In brief, the recent proposals would invert the ratio of minimum
employer cash wage to tip credit from its current 29%-71% to 70%-30% in six years from the
time of enactment.
Table 3. Employer Cash Wages and Tip Credits Required Under Recent Proposals
Employer
Minimum
Contribution
Cash Wage
as % of
Tip Credit as
Federal Minimum
Paid by
Minimum
Maximum Tip
% of Minimum
Year
Wage
Employer
Wage
Credit
Wage
2014 $7.25 $2.13 29% $5.12 71%
2015 $8.20 $3.00 37% $5.20 63%
2016 $9.15 $3.95 43% $5.20 57%
2017 $10.10 $4.90 49% $5.20 51%
2018 $10.30 $5.85 57% $4.45 43%
2019 $10.55 $6.80 64% $3.75 36%
2020 $10.80 $7.55 70% $3.25 30%
Source: CRS analysis of tip credit provisions in H.R. 1010, H.R. 3746, and S. 460, and S. 1737.
Notes: For il ustrative purposes, the figures in Table 3 assume the proposed changes included in these four
recently introduced bills are enacted in 2014 and are effective beginning January 1, 2015. The minimum wage
proposals under review here al cal for indexing the minimum wage rate to inflation (the Consumer Price Index)
after the rate reaches $10.10 per hour. Minimum wage rates for 2018-2020 were estimated using inflation
projections in the Congressional Budget Office, Baseline Economic Forecast, February 2014 Baseline Projections,
Washington, DC, February 4, 2014, http://www.cbo.gov/publication/45066.
Changing the tip credit provisions to set the required employer minimum cash wage from a fixed
dollar amount ($2.13) to a percentage of the minimum wage (70%) has implications for tipped
employees, their employers, and the total cost of the increase:
• Under the proposed changes, the tip credit would remain a constant share, 30%,
of the federal minimum wage. Assuming that tips do not decrease as the
minimum wage increases over time, the practical effect of the legislation would
be to increase the wages received by tipped employees.
• Determining the cost of changes (regardless of how these costs are borne) in the
tip credit provision is complicated because of the lack of reliable data on tips.
When there is a general minimum wage increase for all covered employees, it is
possible to make a reasonable estimate of the number of workers affected and the
potential cost to employers as a whole.7 For tipped workers, the calculation is
more complicated because employers of tipped workers may be paying different
cash wages. Some employers may already be paying more than the minimum of
$2.13 because employee tips are not enough to cover the full minimum wage.
Other employers would bear the full increase of the minimum employer cash

7 For example, it is possible to generate a cost estimate by multiplying the number of affected workers by the increase
in the minimum wage. Data from the U.S. Census Bureau’s Current Population Survey (CPS) could be used to estimate
the number of individuals at or near the minimum wage level.
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The Tip Credit Provisions of the Fair Labor Standards Act (FLSA): In Brief

wage. In the absence of data showing the distribution of employer liability under
the current system, it is difficult to estimate with precision the increased
employer liability of raising the employer minimum cash wage.
Interaction with State Minimum Wage Provisions
Because several states have minimum wage rates that are different (mostly higher) than the
federal minimum wage and different tip credit provisions, the impact of increasing the federal
employer minimum cash wage would vary across states. In general, where there are conflicting
minimum wage provisions, the higher standard (e.g., wage rate) prevails. That is, where the
minimum wage or tip credit provisions are more beneficial to employees, they prevail. For
example, the West Virginia tip credit is 20% of the federal minimum wage, or $1.45, which
means that employers of tipped employees in West Virginia may take a maximum tip credit of
$1.45 toward the employee’s wage. As a result, the minimum employer cash wage in West
Virginia is $5.80 (i.e., $7.25 minus $1.45). The increase in the employer minimum cash wage
proposed in current legislative proposals would not be binding in West Virginia.
Table 4 provides information on minimum wage and tip credit provisions in the 50 states and the
District of Columbia.8 As the data show, the diversity of policies makes an analysis of potential
effects of a change in the federal tip credit provisions difficult. Of the 50 states and the District of
Columbia:
• Seven states—Alaska, California, Minnesota, Montana, Nevada, Oregon, and
Washington—do not currently allow a tip credit. That is, all workers subject to
the minimum wage, regardless of their “tipped” status, are entitled to the full
statutory state or federal minimum wage (whichever is higher) from their
employer. In these states, any change in the federal tip credit would not affect the
payment structure for tipped employees.
• 39 jurisdictions allow a tip credit:
• 24 states and the District of Columbia require a minimum employer cash
wage greater than the federal rate of $2.13 per hour. Two of these states—
Connecticut and New York—have different tip credit provisions based on the
occupation of the tipped worker;
• The remaining 14 states require a minimum employer cash wage of $2.13 per
hour, either by reference to federal law or by state law.
• Five states—Alabama, Louisiana, Mississippi, South Carolina, and Tennessee—
do not have state minimum wages. In these states, employees covered by the
FLSA would also be subject to the tip credit provisions of the federal minimum
wage; for non-covered employees, there is not a minimum wage for tipped or
non-tipped employees.

8 Data in Table 4 reflect the interaction of state minimum wage laws and the populations covered by the FLSA. In
cases of states with no minimum wage—Alabama, Louisiana, Mississippi, South Carolina, and Tennessee—workers in
these states who are covered by the FLSA are also subject to the tip credit provisions of the FLSA. Similarly, in the
states with minimum wage rates below the FLSA minimum—Arkansas, Georgia, Minnesota, and Wyoming—workers
covered by the FLSA are subject to the higher FLSA minimum wage but are subject to the tip credit provisions of state
law.
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The Tip Credit Provisions of the Fair Labor Standards Act (FLSA): In Brief

Table 4. Tip Credit Provisions in Effect in the States
As of January 1, 2014
Total Minimum
Wage (i.e.,
Minimum
Minimum
Employer Cash
Employer Cash
Wage +
Minimum
Wage as a
Maximum Tip
Employer Cash
Maximum Tip
Percentage of
State
Credit
Wage
Credit
Minimum Wage
Federal
$7.25 $2.13 $5.12 29%
Alabamaa $7.25
$2.13
$5.12
29%
Alaska $7.75
$7.75
$0.00
100%
Arizona $7.90
$4.90
$3.00
62%
Arkansasb $7.25
$2.63
$4.62
36%
California $8.00
$8.00
$0.00
100%
Colorado $8.00
$4.98
$3.02
62%
Connecticutc:
Bartenders
$8.70 $7.34 $1.36 84%
Connecticut: Service
Employees

$8.70 $5.69 $3.01 65%
Delaware $7.25
$2.23
$5.02
31%
District of Columbia
$8.25
$2.77
$5.48
34%
Florida $7.93
$4.91
$3.02
62%
Georgiad $7.25
$2.13
$5.12
29%
Hawaii $7.25
$7.00
$0.25
97%
Idaho $7.25
$3.35
$3.90
46%
Illinoise $8.25
$4.95
$3.30
60%
Indiana $7.25
$2.13
$5.12
29%
Iowa $7.25
$4.35
$2.90
60%
Kansas $7.25
$2.13
$5.12
29%
Kentucky $7.25
$2.13
$5.12
29%
Louisianaf $7.25
$2.13
$5.12
29%
Maineg $7.50
$3.75
$3.75
50%
Maryland $7.25
$3.63
$3.62
50%
Massachusetts $8.00 $2.63 $5.37 33%
Michigan $7.40
$2.65
$4.75
36%
Minnesotah $7.25
$7.25
$0.00
100%
Mississippii $7.25
$2.13
$5.12
29%
Missouri $7.50
$3.75
$3.75
50%
Montanaj $7.90
$7.90
$0.00
100%
Nebraska $7.25
$2.13
$5.12
29%
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The Tip Credit Provisions of the Fair Labor Standards Act (FLSA): In Brief

Total Minimum
Wage (i.e.,
Minimum
Minimum
Employer Cash
Employer Cash
Wage +
Minimum
Wage as a
Maximum Tip
Employer Cash
Maximum Tip
Percentage of
State
Credit
Wage
Credit
Minimum Wage
Nevadak: No Health
Insurance

$8.25 $8.25 $0.00 100%
Nevada: Health
Insurance

$7.25 $7.25 $0.00 100%
New Hampshirel $7.25
$3.26
$3.99
45%
New Jerseym $8.25 $2.13 $6.12 26%
New Mexico
$7.50
$2.13
$5.37
28%
New Yorkn: Food
Service Workers

$8.00 $5.00 $3.00 63%
New York: Service
Employees

$8.00 $5.65 $2.35 71%
New York: Service
Employees in Resorts

$8.00 $4.90 $3.10 61%
North Carolina
$7.25
$2.13
$5.12
29%
North Dakotao $7.25 $4.86 $2.39 67%
Ohiop $7.95
$3.98
$3.97
50%
Oklahoma $7.25
$2.13
$5.12
29%
Oregon $9.10
$9.10
$0.00
100%
Pennsylvania $7.25 $2.83 $4.42 39%
Rhode Island
$8.00
$2.89
$5.11
36%
South Carolinaq $7.25 $2.13 $5.12
29%
South Dakota
$7.25
$2.13
$5.12
29%
Tennesseer $7.25
$2.13
$5.12
29%
Texas $7.25
$2.13
$5.12
29%
Utah $7.25
$2.13
$5.12
29%
Vermont $8.73
$4.23
$4.50
48%
Virginia $7.25
$2.13
$5.12
29%
Washington $9.32 $9.32
$0.00 100%
West Virginias $7.25 $5.80 $1.45 80%
Wisconsin $7.25
$2.33
$4.92
32%
Wyomingt $7.25
$2.13
$5.12
29%
Source: CRS analysis of Department of Labor, Wage and Hour Division, Minimum Wages for Tipped Employees,
Washington, DC, January 1, 2014, http://www.dol.gov/whd/state/tipped.htm.
Notes: While the definition of a “tipped employee” is specified in the FLSA, this definition is often different in
different states. That information is not included in this analysis.
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The Tip Credit Provisions of the Fair Labor Standards Act (FLSA): In Brief

a. State does not have a statutory minimum wage. For workers covered by the Fair Labor Standards Act
(FLSA), the FLSA minimum wage and tip credit provisions apply.
b. The state minimum wage in Arkansas is $6.25 per hour and the minimum employer cash wage is $2.63 per
hour. For employees covered by the FLSA, the minimum wage is $7.25 per hour. The minimum employer
cash wage of $2.63 per hour applies in either case.
c. Connecticut has two different tip credit amounts, based on the occupation of the tipped employee. For
bartenders the tip credit is 15.6%, or $1.36 per hour, of the current minimum wage of $8.70 per hour. For
non-bartender service employees, the tip credit is 34.6%, or $3.01 per hour, of the current minimum wage
of $8.70 per hour.
d. State’s statutory minimum wage is $5.15 per hour. Tipped employees, however, are specifical y exempted
from the state’s minimum wage laws. Thus tipped workers in Georgia are covered by the Fair Labor
Standards Act (FLSA) minimum wage and tip credit provisions.
e. Illinois statute specifies that an employer may take a tip credit in an amount not to exceed 40% of the
employee’s wages. Thus, based on the current minimum wage of $8.25 per hour, a 40% tip credit equals
$3.30 per hour.
f.
State does not have a statutory minimum wage. For workers covered by the Fair Labor Standards Act
(FLSA), the FLSA minimum wage and tip credit provisions apply.
g. Maine statute specifies that an employer may take a tip credit in an amount not to exceed 50% of the
minimum hourly wage. Thus, based on the current minimum wage of $7.50 per hour, a 50% tip credit equals
$3.75 per hour.
h. Minnesota has two different minimum wage rates ($6.15 and $5.15 per hour), based on annual receipts. A
“large” employer is one with annual receipts of $625,000 or more and a “smal ” employer is one with
annual receipts of less than $625,000. For employees covered by the FLSA, the minimum wage is $7.25 per
hour. A tip credit is not allowed in either case.
i.
State does not have a statutory minimum wage. For workers covered by the Fair Labor Standards Act
(FLSA), the FLSA minimum wage and tip credit provisions apply.
j.
Montana has two different minimum wage rates ($7.90 per hour for large employers and $4.00 per hour for
small employers), based on gross annual sales. A “large” employer is one with gross annual sales of more
than $110,000 or more and a “smal ” employer is one with gross annual sales of $110,000 or less. For
employees covered by the FLSA who work for smal employers, the minimum wage is $7.25 per hour. A tip
credit is not allowed in either case.
k. Nevada has two different minimum wage rates ($8.25 and $7.25 per hour), based on provision of health
insurance. Minimum wage is $8.25 per hour if health insurance is not provided by employer and received by
employee; wage is $7.25 if health insurance is provided by employer and received by employee. Tip credit is
not allowed in either case.
l.
New Hampshire statute specifies that an employer must pay a tipped employee a base rate of not less than
45% of the minimum hourly wage. Thus, based on the current minimum wage of $7.25 per hour, a 45% base
rate equals $3.26 per hour.
m. The state of New Jersey does not require a minimum hourly employer cash wage but has a “suggested rate”
of $2.13 per hour.
n. New York has three different tip credit amounts, based on the occupation of the tipped employee. For food
service employees the tip credit is $3.00 per hour, for service employees the tip credit is $2.35 per hour,
and for service employees in resort hotels the tip credit is $3.10 per hour.
o. North Dakota statute specifies that an employer may take a tip credit in an amount not to exceed 33% of
the minimum wage. Thus, based on the current minimum wage of $7.25 per hour, a 33% tip credit equals
$2.39 per hour.
p. Ohio has two different minimum wage rates ($7.95 and $7.25 per hour), based on gross annual sales. An
employee of an employer with gross annual sales of $292,000 or more is subject to a minimum wage of
$7.95 per hour, while an employee of an employer with gross annual sales of less than $292,000 is subject
to the federal minimum wage of $7.25 per hour.
Congressional Research Service
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The Tip Credit Provisions of the Fair Labor Standards Act (FLSA): In Brief

q. State does not have a statutory minimum wage. For workers covered by the Fair Labor Standards Act
(FLSA), the FLSA minimum wage and tip credit provisions apply.
r. State does not have a statutory minimum wage. For workers covered by the Fair Labor Standards Act
(FLSA), the FLSA minimum wage and tip credit provisions apply.
s. West Virginia statute specifies that an employer may take a tip credit in an amount equal to 20% of the
minimum wage. Thus, based on the current minimum wage of $7.25 per hour, a 20% tip credit equals $1.45
per hour.
t.
The state minimum wage in Wyoming is $5.15 per hour and the minimum employer cash wage is $2.13 per
hour. For employees covered by the FLSA, the minimum wage is $7.25 per hour. The minimum employer
cash wage of $2.13 per hour applies in either case.


Author Contact Information
David H. Bradley
Specialist in Labor Economics
dbradley@crs.loc.gov, 7-7352

Congressional Research Service
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