Ethan Rhodes
The minimum wage for hospitality workers is a highly debated topic, with laws and regulations varying across different states and localities in the US. The federal government sets a minimum base wage of $2.13 per hour for tipped employees, but states have the autonomy to mandate higher levels, and some do not have specific laws for tipped employees. Calculating wages for tipped employees can be complex, with employers needing to understand federal guidelines, state and local laws, and overtime calculations.
| Characteristics | Values |
|---|---|
| Federal minimum wage | $7.25 per hour |
| Minimum basic cash wage | $2.13 per hour |
| Minimum wage in New York City | $16.50 per hour |
| Minimum wage in Washington State | $9.47 per hour |
| Minimum wage in New Jersey | $14.53 per hour for employers with fewer than 6 employees and seasonal employees |
| Minimum wage in Ohio | $7.25 per hour for employers with gross annual sales of less than $394,000 |
| Minimum wage in Oklahoma | $2.00 per hour for employers with fewer than 10 full-time employees and gross annual sales of $100,000 or less |
| Minimum wage in Wyoming | $5.15 per hour |
| Minimum wage in Florida | $15.00 per hour by September 30, 2026 |
| Minimum wage in Wisconsin for opportunity employees | $5.90 per hour |
| Minimum wage in Massachusetts | $2.63 per hour |
| Minimum wage in the District of Columbia | $8.00 per hour |
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What You'll Learn
Federal minimum wage laws
The federal minimum wage has been adjusted over time, with Congress raising it to $7.25 per hour in 2009, which is the current rate as of 2025. This federal minimum wage applies to employees engaged in interstate commerce or the production of goods for interstate commerce. Amendments in 1961 and 1966 expanded the scope to include employees in large retail and service enterprises, local transportation, construction, and state and local government employees.
Federal law also sets a minimum basic cash wage for tipped workers, which is currently $2.13 per hour. A tipped worker is defined as someone who earns at least $30 per month in tips. Employers are required to ensure that tipped employees earn at least the federal minimum wage when combining tips and wages. If their earnings fall below the minimum wage, the employer must increase the cash wage to compensate.
It's worth noting that some states have chosen to set their own minimum wage laws, with seven states and the territory of Guam applying the same minimum wage to tipped and non-tipped employees. Additionally, smaller government entities like counties and cities may establish minimum wages that are higher than those of their respective states. As of January 2025, 22 states and the District of Columbia have minimum wages above the federal level.
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State minimum wage laws
Some states, such as Georgia, have a state minimum wage law, but it does not apply to tipped employees. In other states like Kansas, Oklahoma, Texas, and Utah, minimum wage laws exclude coverage of employment that is subject to the federal Fair Labor Standards Act (FLSA).
Additionally, some states set subminimum rates for minors, students, or new hires. For instance, Wisconsin allows a cash wage of $2.13 per hour for "opportunity employees"—those under 20 who have been employed for fewer than 90 consecutive days. In contrast, the minimum wage for other employees in the state is $5.90 per hour.
Local governments in some states, such as the District of Columbia, may set minimum wage rates higher than their respective state minimum wages. The minimum wage in the District of Columbia is set to increase annually until it reaches the full minimum wage in 2027. Similarly, Florida's minimum wage is scheduled to increase by $1.00 every year until it reaches $15.00 on September 30, 2026.
State laws also vary regarding tip credits. In some states, employers can claim a tip credit to meet the minimum wage requirement. For example, in New York, the minimum wage for food service workers is $16.50 per hour, and employers can combine a cash wage of at least $11.00 with a tip allowance of no more than $5.50 per hour. However, tip allowances are not permitted in miscellaneous industries, and employers cannot claim tip credits for days when tipped workers spend a significant portion of their shift doing non-tipped work.
Calculating payroll for tipped employees, especially in the hospitality industry, can be complex due to varying state and local laws. Employers must understand the laws in their state and ensure compliance with local minimums and differing requirements for tipped employees between jurisdictions.
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Tip credits
According to the Fair Labor Standards Act (FLSA), employers must pay a total of the federal minimum wage, which is currently $7.25 per hour. This can be made up of the tipped minimum wage ($2.13 per hour), with the remainder ($5.12) accounted for through an employee's tips for a combined hourly rate that equals the federal minimum wage. The maximum tip credit that an employer can currently claim is $5.12 per hour. The tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee.
Tip pooling is allowed by the FLSA, which enables employers to require employees to share or "pool" tips with other eligible employees. Employers in the hospitality industry may not take tip credits for days when tipped workers spend more than two hours, or 20% of a shift, doing non-tipped work.
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Overtime calculations
The general rule is that overtime pay is calculated at a rate of 1.5 times the employee's regular rate of pay for hours worked beyond a standard workweek (usually 40 hours). For tipped employees, the overtime rate is based on the full minimum wage, including the tip credit. This means that the minimum wage ($7.25 per hour) is multiplied by 1.5, and then the tip credit ($5.12 per hour) is subtracted. This adjusted rate is then multiplied by the number of overtime hours worked.
For example, consider a tipped employee with a cash wage of $2.13 per hour and a tip credit of $5.12 per hour, resulting in a total of $7.25 per hour. If this employee works 60 hours in a week, the overtime calculation would be as follows:
- First 40 hours: 40 hours x $2.13 = $85.20
- Overtime hours: 20 hours x ($7.25 x 1.5) - $5.12 = $64
- Total pay: $85.20 + $64 = $149.20
It is important to note that some states have specific rules for tipped employees. For instance, in Massachusetts, the minimum wage is $12 per hour, and the tipped minimum wage is $4.35 after deducting the $7.65 tip credit. Overtime must be applied to the blended rate, which takes into account all rates and hours worked to reach 40 hours.
To ensure compliance, employers in the hospitality industry must stay updated on minimum wage laws and regulations, both at the state and federal levels. They should also maintain accurate records of hours worked, wages paid, and any tips received by employees.
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Payroll software
The minimum wage for hospitality workers varies depending on the state and whether the employee is a tipped worker. For example, the minimum cash wage for restaurant workers and other tipped employees in South Carolina is $2.13 an hour, whereas in New Jersey, the minimum wage is $14.53 an hour for employers who employ fewer than six people.
Managing payroll for tipped employees, especially in the hospitality industry, is a complex process that involves understanding federal guidelines, checking the laws in your state and locality, keeping detailed records, and ensuring correct calculations. This is where payroll software comes in.
Dedicated payroll software for the hospitality industry is designed to address the specific needs of the sector, including tip reporting, variable work hours, and compliance with labour laws unique to hospitality. For example, SurePayroll is a user-friendly payroll software that provides a seamless solution for payroll processing and tax filing, simplifying complex financial tasks. Toast Payroll is another specialised solution for the restaurant industry, offering features like tip management and seamless integration with the Toast POS system.
Other benefits of payroll software include streamlined record-keeping, ensuring organised and easily accessible records that simplify audits and regulatory compliance. Additionally, payroll software helps businesses stay on top of wage and hour laws with integrated record-keeping and overtime calculations, reducing the risk of errors and ensuring compliance with tax laws.
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Frequently asked questions
The minimum wage for hospitality workers in the US depends on the state and whether the worker is a tipped employee or not. The federal minimum wage is $7.25 per hour, but some states have chosen to increase the minimum wage above this. For tipped employees, the federal minimum basic cash wage is $2.13 per hour, but again, this varies by state.
A tipped employee is anyone who regularly receives at least $30 per month in tips, although some states have a lower threshold of $20 per month.
In New York, employers in the hospitality industry can combine a "cash wage" with a credit or allowance for tips that the employee receives from customers. For example, the minimum wage for food service workers in New York City is $16.50 per hour, which can be made up of a cash wage of $11.00 and a tip allowance of $5.50 per hour.
