Write a cash wage of at least $2.13 on a federal tip-credit offer, then match the state rule before you send it.
Key takeaways for cash wage before a tipped job offer
- The federal tip credit formula calculates the credit as the minimum wage required by section 6(a)(1) minus the cash wage paid, which must be at least $2.13, according to Legal Information Institute.
- An employee is a "tipped employee" for wage credit purposes when tips in their occupation customarily and regularly total more than $30 a month, according to Legal Information Institute.
- An employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion, regardless of whether the employer takes a tip credit, according to U.S. Government Publishing Office.
- In California, an employer cannot use an employee's tips as a credit towards its obligation to pay the minimum wage, according to California Department of Industrial Relations.
- For food service workers in New York City, a cash wage of at least $11.35 and a tip allowance of no more than $5.65 per hour can meet the minimum wage, according to New York Department of Labor.
A tipped offer needs the cash wage the quoted page allows, not a guess
The $2.13 is the federal floor for the credit calculation, as defined in Legal Information Institute.
When drafting a tipped offer, the cash wage must be a concrete number derived from the applicable regulation. It is not a variable to be estimated or a blank to be filled in later. The federal regulation provides a specific formula for calculating the tip credit. Under 29 CFR § 531.59, the amount paid to a tipped employee is increased on account of tips by an amount equal to the formula set forth in the statute (minimum wage required by section 6(a)(1) of the Act minus cash wage paid (at least $2.13)), provided that the employer satisfies all the requirements of section 3(m)(2)(A), according to Legal Information Institute.
The regulation explicitly states that the credit allowed on account of tips may be less than that permitted by statute (minimum wage required by section 6(a)(1) minus the cash wage paid (at least $2.13)); it cannot be more, according to Legal Information Institute.
For a recruiter or hiring manager, this means the cash wage on the offer letter must align with the specific regulatory floor. If the offer relies on the federal tip credit structure, the cash wage component must be at least $2.13, according to Legal Information Institute. You cannot use a lower figure and assume the tips will cover the difference, because the credit is capped by the statutory formula. The cash wage is the fixed part of the equation; the tips are the variable part that fills the gap up to the minimum wage.
With the exception of tips contributed to a tip pool limited to employees who customarily and regularly receive tips as described in § 531.54, section 3(m)(2)(A) also requires employers that take a tip credit to permit employees to retain all tips received by the employee, according to Legal Information Institute.
Write the cash wage of at least $2.13 on the draft offer and verify that the state-specific rule permits this credit before sending the document.
Who counts as a tipped employee in the federal pages
The federal definition of a tipped employee hinges on a specific monthly tip threshold. Under the regulation, an employee who receives tips within the meaning of the Act is considered a "tipped employee" when the amounts received as tips customarily and regularly total more than $30 a month in the occupation in which the employee is engaged, according to Legal Information Institute. This definition applies to employees working in that occupation, whether they are employed full time or part time. When an employee meets this minimum standard of receiving more than $30 a month in tips, the wage credit provided by section 3(m)(2)(A) may be taken in computing the compensation due under the Act for employment in that occupation, according to Legal Information Institute.
The statute itself provides the same baseline definition. The term "tipped employee" means any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips, according to U.S. Government Publishing Office.
If an employee does not meet this threshold, the classification changes entirely. An employee employed full time or part time in an occupation in which he or she does not receive more than $30 a month in tips customarily and regularly is not a "tipped employee" within the meaning of the Act, according to Legal Information Institute. Such an employee must receive the full compensation required by the provisions of the Act in cash or allowable facilities without any deduction for tips received under the provisions of section 3(m)(2)(A), according to Legal Information Institute.
The federal cash-wage figure and the duty to let the worker keep tips
The tip credit calculation uses a specific cash wage floor. The regulation states that the tip credit equals the difference between the minimum wage required by section 6(a)(1) and the cash wage paid, which must be at least $2.13 per hour according to Legal Information Institute. This figure defines the baseline cash amount the employer must pay before applying the credit for tips.
Employers who take a tip credit have a strict obligation regarding the worker's earnings. Section 3(m)(2)(A) requires employers that take a tip credit to permit employees to retain all tips received by the employee according to Legal Information Institute. The only exception noted is for tips contributed to a tip pool limited to employees who customarily and regularly receive tips as described in § 531.54 according to Legal Information Institute.
The prohibition on keeping tips is absolute in the federal statute. An employer may not keep tips received by its employees for any purposes according to U.S. Government Publishing Office. This ban includes allowing managers or supervisors to keep any portion of employees' tips according to U.S. Government Publishing Office. The rule applies regardless of whether or not the employer takes a tip credit according to U.S. Government Publishing Office.
A notice requirement accompanies these protections. The preceding provisions shall not apply with respect to any tipped employee unless such employee has been informed by the employer of the provisions of this subsection according to U.S. Government Publishing Office. Additionally, all tips received by such employee must have been retained by the employee according to U.S. Government Publishing Office. The statute does not prohibit the pooling of tips among employees who customarily and regularly receive tips according to U.S. Government Publishing Office.
New York, California, and Missouri each state their own tip rule
State rules vary significantly, so the cash wage on your offer depends on the specific jurisdiction. You cannot apply a single federal figure to every location without checking the local department of labor guidance. Also read State overtime rules from 4 pages before the offer.
In New York, the Department of Labor provides a specific example for food service workers. For example, the minimum wage for food service workers in New York City is $17.00 per hour, according to New York Department of Labor. This structure allows tips to count toward the total, but only up to the specified allowance. However, the page includes a note regarding other sectors. As of December 31, 2020, tip allowances are not permitted in miscellaneous industries (all other industries except hospitality, farm workers, and building service), according to New York Department of Labor.
California takes a different approach. The state explicitly bars the use of tips to meet the minimum wage requirement. Unlike under federal regulations, in California an employer cannot use an employee's tips as a credit towards its obligation to pay the minimum wage, according to California Department of Industrial Relations. Instead, California law requires that employees receive the minimum wage plus any tips left for them by patrons of the employer's business, according to California Department of Industrial Relations. Furthermore, Labor Code Section 351 prohibits employers and their agents from sharing in or keeping any portion of a gratuity left for or given to one or more employees by a patron, according to California Department of Industrial Relations. This means the cash wage on a California offer must be the full minimum wage, with tips treated as additional income.
Missouri uses a percentage-based calculation. Employers are required to pay tipped employees at least 50 percent of the minimum wage, $7.50 per hour, plus any amount necessary to bring the employee’s total compensation to a minimum of $15.00 per hour, according to Missouri Department of Labor and Industrial Relations. This rule sets a specific cash floor of $7.50 while ensuring the total compensation reaches $15.00.
When drafting an offer, identify which of these three structures applies to the worker's location. If the job matches the New York City food-service example, use the $11.35 cash wage and the $5.65 allowance. If the job is in California, pay the full minimum wage in cash and treat tips as extra. If the job is in Missouri, pay the $7.50 cash wage and ensure the total reaches $15.00. Check the specific state page for the exact figures before finalizing the document. See Salary history questions: 3 state rules to check.
Filled reference table of each publisher's tip-wage rule
The following table lists the specific cash wage or tip rule stated by each publisher in their quoted pages. Use this to verify the figures before drafting the offer.
| Publisher | Cash Wage or Tip Rule | Source |
|---|---|---|
| Legal Information Institute | The amount paid to a tipped employee is increased on account of tips by an amount equal to the formula (minimum wage minus cash wage paid (at least $2.13)). | Legal Information Institute |
| New York Department of Labor | The minimum wage for food service workers in New York City is $17.00 per hour. | New York Department of Labor |
| New York Department of Labor | For food service workers in New York City, a cash wage of at least $11.35 and a tip allowance of no more than $5.65 per hour can meet the minimum wage. | New York Department of Labor |
| California Department of Industrial Relations | An employer cannot use an employee's tips as a credit towards its obligation to pay the minimum wage. | California Department of Industrial Relations |
| Missouri Department of Labor and Industrial Relations | Employers are required to pay tipped employees at least 50 percent of the minimum wage, $7.50 per hour, plus any amount necessary to bring the employee’s total compensation to a minimum of $15.00 per hour. | Missouri Department of Labor and Industrial Relations |
Check the specific jurisdiction for the role before finalizing the number on the offer letter.
Illustrative example of two monthly tip totals
A manager compares two occupations before writing the cash wage. In the first, tips customarily and regularly total $40 a month, which is more than $30 a month, so the federal pages treat that worker as a tipped employee and the tip credit can apply. In the second, tips total $10 a month, so the worker is not a tipped employee and the cash wage cannot be reduced for tips. The manager writes the cash figure from the state page for the job site and does not reuse that draft for a different state.
What to write on the tipped offer today
Write the cash wage on the draft offer before sending it. Do not leave the wage line blank or use a stand-in such as "minimum wage plus tips." The specific figure depends on the state where the work will be performed, so check the quoted page for that jurisdiction. Write $11.35 in the cash wage field only for that New York City food-service role. If the state is California or Missouri, the rules differ, so do not copy the New York figure into those offers.
Note whether the quoted page for that state lets tips fill the minimum. In the New York City food-service example, the tip allowance is no more than $5.65 per hour, according to New York Department of Labor. For food service workers in New York City, the cash wage in that example stays at least $11.35. If your staffing firm places workers in multiple states, create a separate offer draft for each state with its own cash wage figure. Do not use a single national draft that assumes the federal $2.13 cash wage applies everywhere, as state rules may require a higher cash amount.
Add a line to the offer that states the cash wage explicitly. A sample line for a New York City food-service placement is "Cash wage: $11.35 per hour". Do not write "Minimum wage" without the specific number, because the minimum wage figure varies by state and role. This clarity helps the worker understand their guaranteed pay before tips are considered. If you are unsure which state's rule applies, check the location of the job site before finalizing the offer. Also see First payday rules for 4 state payment schedules.
Tipped-wage offer FAQ
When does the $2.13 figure apply?
The $2.13 figure serves as the federal cash wage floor within the tip credit formula. It is the minimum cash wage paid to a tipped employee when calculating compliance with wage payment requirements. This calculation applies provided the employer satisfies all requirements of section 3(m)(2)(A) according to Legal Information Institute. The formula increases the amount paid to the employee on account of tips by the difference between the minimum wage and this cash wage.
Who is a tipped employee under the $30 line?
An employee is classified as a tipped employee when the amounts received as tips customarily and regularly total more than $30 a month. This definition applies to employees in the occupation in which they are engaged. The wage credit provided by section 3(m)(2)(A) may be taken for such employees whether they are employed full time or part time according to Legal Information Institute. Falling below this monthly tip threshold means the employee does not meet the minimum standard for the wage credit in that occupation.
Can I use tips to meet the minimum in California?
No, an employer cannot use an employee's tips as a credit towards its obligation to pay the minimum wage in California. This rule stands in contrast to federal regulations. The California Department of Industrial Relations explicitly prohibits this practice for employers operating within the state according to California Department of Industrial Relations. You must pay the full minimum wage in cash without relying on tip income to fill the gap.
What cash wage and tip allowance does the New York page state for its food-service example?
The cash wage and tip allowance figures are distinct components of the total compensation structure according to New York Department of Labor. Use $11.35 and $5.65 only for a role in that New York City food-service example.
What do I write on the offer today?
Write the specific cash wage for the state where the job is located on the draft offer. For example, if the role is in California, the cash wage must meet the full minimum wage because tips cannot be used as a credit. If the role is food service work in New York City, the cash wage in the quoted example must be at least $11.35. This ensures the offer aligns with the specific rules published by the relevant state agency.