U.S. States That Prohibit Tip Credit
Learn all there is to know about tip credits in the U.S., including which states prohibit tip credit, how it works, and frequently asked questions.
Updated on December 20th, 2021
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Tipped minimum wage is the base amount paid to employees who earn a large part of their wages through tips. In most U.S. states, employers can claim a "tip credit," allowing them to pay employees less than the minimum wage if they earn enough in tips. However, this does not apply to all U.S. businesses, with tip credit prohibited in seven states.
How it Works:
According to U.S. law, businesses are allowed to use tip credit by paying tipped workers from $2.13 an hour if those workers earn at least the standard minimum wage of $7.25 an hour once their tips are added. In states that prohibit tip credit, employers are required to pay their employees the state's minimum wage, as well as their collected tips.
U.S. States That Prohibit Tip Credit:
Minimum Hourly Wage for Tipped Employees (2021)
In most of the seven states that prohibit tip credit, including Alaska, California, Montana, and Nevada, employers are allowed to institute tip pooling. Also referred to as "tipping out," tip pooling requires employees to share a portion of their tips, which will then be distributed among staff members.
Tip pooling is only allowed if employees are still able to reach the minimum hourly rate and employers are not allowed to use the funds.
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Which states allow tip credit?
The majority of the 50 U.S. states, excluding Alaska, California, Guam, Minnesota, Montana, Nevada, Oregon, and Washington, allow tip credit.
Which states don't have tip credit?
What is tip credit?
When an employee earns enough from tips to meet the minimum hourly wage in their state, employers can claim "tip credit," allowing them to pay their employees less than the minimum wage.
Can an employer force you to tip out other employees?
Yes. Under federal law, some states allow employers to require that employees "tip out" and share their earnings.
Where to find more information about tip credit:
Call 1 (866) 487-9243, visit www.dol.gov/agencies/whd, or visit your nearest Wage and Hour Division (WHD) office for assistance.
Read through the U.S. Department of Labor's (DOL) information about tip credit.