Server Tip Wage Compliance Calculator
FLSA tip credit, employer makeup pay, and the 80/20 rule — per employee, per pay period.
The FLSA allows you to pay tipped employees a cash wage as low as $2.13/hour — but only if their tips make up the difference to the full minimum wage. When they don't, you owe makeup pay. When you've failed to give them a proper tip credit notice, you owe the full minimum wage for every hour worked. This calculator runs the compliance math per employee, per pay period, and flags issues before the DOL does.
Important: Many states have higher minimum wages and different tipped rates. Your state law governs if it is more favorable to the employee than federal law. Look up your state in the reference table below.
Employee Pay Period Details
Compliance Verdict
(cash + makeup)
(wages + tips)
FLSA Compliance Calculation Worksheet
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80/20 Rule Analysis
Compliance Checklist for This Employee
State Minimum Wage & Tipped Rate Reference — 2026
Rates current as of early 2026. States marked No Credit do not allow employers to take a tip credit — full minimum wage required.
| State | Min Wage (2026) | Tipped Cash Wage | Tip Credit | Type | Notes |
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The FLSA Tip Credit: What Every Operator Must Know
The Fair Labor Standards Act allows eligible employers to pay tipped employees a cash wage as low as $2.13/hour — but only under specific, strict conditions. Millions of restaurant operators use the tip credit daily and face zero liability. Those who get it wrong face back pay, liquidated damages, and DOL investigations.
The Three Requirements for a Valid Tip Credit
You must inform each employee in writing before using the tip credit. The notice must state the cash wage paid, the tip credit amount, that tips belong to the employee, and that the credit cannot exceed tips actually received. No notice = no credit. Period.
If an employee's tips plus cash wage don't equal the minimum wage for all hours in a pay period, you owe the difference as makeup pay. This is calculated per pay period — not per shift, not per hour. Track it every period.
Tips belong to the employee. You may not retain any portion. The only lawful exception is a valid tip pool — and managers, supervisors, and owners are prohibited from participating in any tip pool under the 2018 FLSA amendments.
The employee must work in a tipped occupation — one that customarily and regularly receives more than $30/month in tips. If an employee's tips drop below this threshold in a given month, the tip credit is unavailable for that month.
The 80/20 Rule After the December 2024 DOL Rollback
In December 2024, the DOL restored the dual jobs regulation, effectively rolling back the 2021 final rule that introduced the formal 80/20 threshold. Under the restored framework, the tip credit is lost for work in a separate non-tipped occupation (dual jobs) — but incidental side work that supports the tipped occupation does not trigger dual-jobs treatment.
However, many states still enforce their own 80/20 standards. If more than 20% of an employee's time is spent on non-tipped duties under state law, the tip credit is unavailable for those hours. States with active 80/20 enforcement include California (no credit anyway), New York, New Jersey, and others. Check your state's current DOL guidance.
Overtime and the Tip Credit
Tipped employees earn overtime at 1.5× the full minimum wage, not 1.5× the cash wage. At $7.25 federal minimum, overtime is $10.875/hour. The employer can still take the tip credit on overtime hours, but the overtime premium is based on the minimum wage floor. Track overtime hours separately — the calculation changes.
Record-Keeping Checklist
- Written tip credit notice on file for every tipped employee — signed and dated
- Daily hours worked per employee (including start and end times)
- Weekly hours summary — flag any overtime over 40 hours/week
- Tip amounts reported by employee each pay period
- Cash wages paid per period
- Any makeup pay calculations and amounts paid
- Side work hours tracked separately (or hours by job if dual jobs apply)
- Tip pool calculations and distributions if applicable
- Records retained minimum 3 years
- State-specific records if state law requires additional documentation
Frequently Asked Questions
What is the federal tip credit and how does it work?
The federal tip credit allows employers to pay tipped employees a cash wage of $2.13/hour and credit up to $5.12/hour of tips toward the $7.25 federal minimum wage. If an employee's tips don't cover the $5.12/hour gap, the employer must pay the shortfall as makeup pay. Many states have higher minimum wages and different rules — always use the rate most favorable to the employee.
What is employer makeup pay and when is it required?
Makeup pay is the amount you must pay when tips plus cash wage fall short of the minimum wage. Example: minimum wage $7.25, cash wage $2.13, tips earned $3.50/hour — you owe $1.62/hour in makeup pay. This is calculated per pay period, not per shift. Even a single short pay period can trigger liability.
Which states do not allow the tip credit?
States with no tip credit (full minimum wage required for tipped employees): Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. In these states you must pay the full state minimum wage regardless of tips received. Several other states have tipped cash wages significantly above the $2.13 federal floor — check the reference table above for your state.
What happened to the 80/20 rule in 2024?
In December 2024, the DOL restored the dual jobs regulation, rolling back the 2021 rule that had established a formal 80% threshold. Under the current federal standard, the tip credit is lost only when the employee is working in a separate non-tipped occupation (dual jobs) for a substantial amount of time. However, many states still enforce their own 80/20 or related side work standards — check your state's wage and hour guidance.
Do I need a written tip credit notice for every employee?
Yes. A written tip credit notice is required for every tipped employee before you can take the credit. The notice must state the cash wage paid, the tip credit amount claimed, that the credit cannot exceed tips actually received, and that all tips belong to the employee (with the pool exception if applicable). Verbal notice is not sufficient. Failure to provide written notice means you cannot take the tip credit and owe the full minimum wage for all hours worked.
Can managers participate in a tip pool?
No. Under the 2018 FLSA amendments, managers, supervisors, and owners are explicitly prohibited from participating in any tip pool — even in states where employers do not take a tip credit. Allowing a manager to participate in a tip pool can result in liability for back pay for all affected employees plus equal liquidated damages.
How does overtime work for tipped employees?
Tipped employees are entitled to overtime at 1.5× the full minimum wage, not 1.5× the cash wage. At the $7.25 federal minimum, overtime is $10.875/hour. You can still apply the tip credit to overtime hours, meaning the cash overtime rate is $10.875 minus the tip credit ($5.12) = $5.755/hour cash for overtime. If tips don't cover the credit, makeup pay applies to overtime hours as well.