The federal server minimum wage is a cash wage of $2.13 per hour, and it has held at that rate since 1991. Employers can pay this reduced amount only when your tips bring your total hourly earnings up to at least the regular federal minimum wage of $7.25 per hour. If tips fall short in any workweek, your employer has to make up the difference. That basic arrangement is the starting point, but the rules around notice, overtime, tip pools, side work, and deductions decide whether you actually take home what you are owed.
How $2.13 and $7.25 Fit Together
Under 29 U.S.C. § 203(m)(2)(A), an employer may pay a tipped employee a direct cash wage of $2.13 per hour if the employee customarily receives more than $30 per month in tips.1Office of the Law Revision Counsel. 29 USC 203 – Definitions That $30 monthly figure is what makes you a “tipped employee” in the first place. If your tips regularly run below it, your employer cannot use the tipped wage structure at all and owes you the full $7.25.2U.S. Department of Labor. Fact Sheet 45 – Hotel and Motel Establishments Under the Fair Labor Standards Act
The $7.25 federal minimum wage was last raised in 2009 under 29 U.S.C. § 206(a)(1).3Office of the Law Revision Counsel. 29 USC 206 – Minimum Wage The $2.13 cash wage has been frozen even longer.
The Tip Credit Math
The tip credit is the mechanism that lets an employer bridge the gap between $2.13 and $7.25. Under 29 C.F.R. § 531.59, an employer can count up to $5.12 per hour of your tips toward its minimum wage obligation.4eCFR. 29 CFR 531.59 – The Tip Wage Credit The math is simple: $2.13 cash wage plus $5.12 tip credit equals $7.25.
The credit can never exceed what you actually earn in tips. If you receive only $3.00 per hour in tips during a workweek, the employer can claim a $3.00 credit and must pay the remaining $4.25 directly. The employer carries the burden of proving the credit never exceeds real tips received.
What Your Employer Must Tell You First
An employer forfeits the right to claim any tip credit if it doesn’t give you advance notice of the arrangement. The regulation requires four specific disclosures:
- The exact hourly cash wage the employer will pay you directly.
- The tip credit amount being counted toward minimum wage, which can never exceed your actual tips.
- That all tips you receive belong to you, except contributions to a valid tip pool limited to customarily tipped employees.
- That if you were not informed of these requirements, the tip credit does not apply.
An employer that skips the notice step owes you the full $7.25 per hour in cash wages for every hour worked, regardless of how much you earned in tips.4eCFR. 29 CFR 531.59 – The Tip Wage Credit This is one of the most common violations in restaurant work, and liability can reach back two or three years.
When Your Tips Don’t Reach $7.25
If your cash wage plus tips don’t add up to $7.25 per hour in any given workweek, your employer must make up the shortfall.5U.S. Department of Labor. Fact Sheet 15 – Tipped Employees Under the Fair Labor Standards Act The calculation runs across the entire workweek, not shift by shift. A slow Monday won’t trigger extra pay if a busy Friday lifts your weekly average above $7.25.
Consider a 40-hour week. Your employer pays $2.13 per hour, or $85.20. You earn $180 in tips. Total: $265.20, which works out to $6.63 per hour. That’s below $7.25, so your employer owes you the difference of $0.62 per hour, or $24.80 for the week. An employer who fails to fill the gap owes the unpaid wages plus an equal amount in liquidated damages.6Office of the Law Revision Counsel. 29 USC 216 – Penalties
Overtime for Tipped Workers
Once you work more than 40 hours in a workweek, you’re entitled to overtime at one and a half times your regular rate. For tipped employees, the regular rate is not $2.13. It’s the full minimum wage, because the tip credit counts toward it. So if your employer takes the full $5.12 tip credit, your regular rate is $7.25.7eCFR. 29 CFR 531.60 – Overtime Payments
Your overtime rate is $7.25 × 1.5 = $10.88 per hour. The employer can still apply the same $5.12 tip credit during overtime hours, so the minimum direct cash wage for each overtime hour is $10.88 − $5.12 = $5.76.8U.S. Department of Labor. FLSA Overtime Calculator Advisor Employers who pay only $2.13 for overtime hours are shortchanging you. That mistake is common. Check your pay stubs.
Tip Pooling: Who Can Share
Federal law allows mandatory tip pools, with limits on participation that depend on whether the employer is taking a tip credit.
When the employer takes a tip credit and pays the $2.13 cash wage, the pool can include only employees who customarily receive tips: servers, bartenders, bussers, and similar roles. Back-of-house staff like cooks and dishwashers are excluded.9eCFR. 29 CFR 531.54 – Tip Pooling
When the employer pays the full $7.25 and takes no tip credit, the pool can be broader and include cooks, dishwashers, and other non-tipped workers. Either way, managers, supervisors, and owners are always barred from taking a share of pooled tips. An employer who dips in owes the tips taken plus an equal amount in liquidated damages.
Side Work and the Dual Jobs Rule
Servers spend plenty of shift time on things that don’t directly produce tips: rolling silverware, wiping tables, brewing coffee, restocking. The question is when non-tipped work becomes so separate from serving that the tipped wage no longer covers it.
Under 29 C.F.R. § 531.56(e), if you hold two genuinely different jobs for the same employer, say server and maintenance worker, the tip credit applies only to the hours spent serving. No tip credit is allowed for hours in the non-tipped occupation.10eCFR. 29 CFR 531.56 – More Than $30 a Month in Tips But side work that’s part of the tipped job itself does not require separate pay at the full minimum wage, even if it doesn’t generate tips.
You may have heard of the “80/20 rule,” which required the full minimum wage whenever side work exceeded 20 percent of your hours, or a “30-minute rule” that kicked in after 30 continuous minutes of non-tipped tasks. Both came from a 2021 Department of Labor regulation. The Fifth Circuit struck them down in October 2024, and in December 2024 the DOL issued a final rule formally restoring the original, less specific standard.11Federal Register. Tip Regulations Under the Fair Labor Standards Act – Restoration of Regulatory Language Neither rule is in effect at the federal level. Some states still enforce similar limits, so check your state labor agency if side work eats up your shifts.
Service Charges Are Not Tips
A mandatory service charge, the kind automatically added for large parties or banquets, is not a tip under federal law, even when it looks like one on the receipt. When the restaurant later distributes that money to employees, it counts as a regular non-tip wage subject to income tax withholding, Social Security, and Medicare.12Internal Revenue Service. Tip Recordkeeping and Reporting
Two consequences follow. Employers are not required to hand service charges out to employees at all unless a contract or state law says otherwise. And service charges don’t count toward the tip credit. If your employer takes a $5.12 tip credit, only actual voluntary tips can fill it, not a share of service charge revenue.
Deductions That Eat Into $2.13
Because the tipped cash wage plus the tip credit lands exactly at $7.25, almost any deduction can push you under minimum wage and create a violation.
Uniforms
If your employer requires a uniform and makes you pay for it, replace it, or clean it, those costs count against your wages. When a tip credit is in play, the employer cannot pass uniform costs to you if doing so drops your effective pay below $7.25.13U.S. Department of Labor. Fact Sheet 2 – Restaurants and Fast Food Establishments Under the Fair Labor Standards Act With the tip credit already pushing your pay to exactly minimum wage, virtually any uniform-related deduction triggers a violation.
Credit Card Processing Fees
Federal law permits an employer to deduct the actual credit card processing fee from tips paid by card. If the processor charges 3 percent and a customer leaves a $20 card tip, the employer can withhold 60 cents. The deduction is capped at the real fee. It cannot include general business costs, and it cannot reduce your total hourly earnings below minimum wage. Credit card tips must be paid out by the next regular payday, not whenever the card company settles.
Meal Credits
Employers can take a credit for meals provided to you at cost, but not for discounted menu prices.13U.S. Department of Labor. Fact Sheet 2 – Restaurants and Fast Food Establishments Under the Fair Labor Standards Act Combined with the tip credit, any meal deduction still has to leave you at $7.25 or above.
Many States Pay More
The $2.13 federal cash wage is a floor. Eight jurisdictions, including Alaska, California, Minnesota, Nevada, Oregon, and Washington, don’t allow a tip credit at all, so employers there pay tipped workers the full state minimum wage before tips.14U.S. Department of Labor. Minimum Wages for Tipped Employees Tips come on top of that.
Among states that do allow a tip credit, required cash wages range from a few cents above $2.13 to $10 or more per hour before tips. Your employer must pay whichever rate is higher, federal or state. The DOL maintains a comparison chart, and your state labor department publishes current rates.
What Employers Owe When They Get It Wrong
Under 29 U.S.C. § 216, an underpaid worker can recover the full amount of unpaid wages plus an equal amount in liquidated damages, effectively doubling the recovery. Attorney’s fees and court costs come on top. The Department of Labor can sue on your behalf, or you can file privately.6Office of the Law Revision Counsel. 29 USC 216 – Penalties
Beyond back wages, the DOL can assess civil money penalties of up to $2,515 per violation for willful or repeated minimum wage offenses.15U.S. Department of Labor. Civil Money Penalty Inflation Adjustments An employer that keeps employee tips in violation of 29 U.S.C. § 203(m)(2)(B) owes the full tip credit taken plus all tips unlawfully kept, again doubled by liquidated damages. These figures stack fast when violations span months or affect multiple employees, which is why wage-theft cases in the restaurant industry routinely settle in the six and seven figures.