What is a tip credit, and what happened to the 20% side-work rule?
The short answer
Example math
Two weeks at the federal $2.13 cash wage, 25 hours each (illustrative).
| Busy week | Slow week | |
|---|---|---|
| Cash wage: 25 Ă— $2.13 | $53.25 | $53.25 |
| Tips you received | $400.00 | $100.00 |
| Wage plus tips | $453.25 | $153.25 |
| Federal minimum: 25 Ă— $7.25 | $181.25 | $181.25 |
| Your employer must add | $0 | $28.00 |
- Busy week: your tips more than cover the $5.12-an-hour gap, so the tip credit covers the minimum wage and your employer pays only the $2.13.
- Slow week: $2.13 plus tips falls $28.00 short of $7.25 an hour. DOL says your employer must make up the difference, at the regular payday for the period that includes that week.
Not tax or legal advice. The numbers are made up. Your state may require a higher cash wage or ban the tip credit.
Plain English
The tip credit in plain English
The federal minimum wage is $7.25 an hour. If you’re a tipped employee, meaning you customarily and regularly get more than $30 a month in tips, your employer may pay as little as $2.13 an hour in cash and count your tips toward the other $5.12. That $5.12 is the most it can claim. It can’t claim more than the tips you actually got.
The tip credit isn’t money taken out of your tips. You keep your tips. It’s an accounting rule for whether your employer has met the minimum wage.
What your employer has to tell you first
Before taking a tip credit, DOL says your employer must tell you, out loud or in writing: your cash wage; how much tip credit it’s claiming; that the credit can’t be more than the tips you actually received; that you keep all your tips except through a valid tip pool; and that the credit doesn’t apply unless you were told all this. An employer that didn’t tell you can’t take the tip credit.
Your state may be different
When state law differs, your employer must follow whichever rule protects you more. DOL notes some states require a higher cash wage than $2.13, and some don’t allow a tip credit at all. DOL keeps a list of state labor offices. For each state’s figures, see Server minimum wage by state.
The 20% side-work rule: what happened
Servers often hear that side work like rolling silverware can’t take more than 20% of your shift at $2.13. Here’s the history from DOL’s own pages.
- 1967 on: the original rule says a job with a separate non-tipped role, like a hotel maintenance worker who also serves, is a “dual job.” No tip credit is allowed for the non-tipped job’s hours. It also says a server who spends part of their time cleaning and setting tables, toasting bread, making coffee, and occasionally washing dishes or glasses is in a different situation. Those related duties “need not by themselves be directed toward producing tips.”
- December 28, 2021: a new DOL rule took effect. It said tipped employees must get the full minimum wage whenever untipped support work went over 20 percent of their workweek or 30 continuous minutes.
- October 29, 2024: the U.S. Court of Appeals for the Fifth Circuit, in Restaurant Law Center v. U.S. Department of Labor, vacated that 2021 rule. That reinstated the original text.
- December 17, 2024: DOL restored the original wording in the regulations.
DOL’s current tipped-employee fact sheet repeats the original dual-jobs text. It doesn’t state a percentage or time limit for side work.
Where to ask
DOL’s Wage and Hour Division takes calls at 1-866-487-9243. Complaints are confidential. See How to file a complaint.
Common mistakes
- Reading a “tip credit” line on your stub as money taken from your tips.
- Not checking slow weeks. The $7.25 test is per workweek, not per year.
- Assuming the 20% side-work rule is still federal law.
- Assuming your state follows the federal $2.13.
Official sources
- U.S. Department of Labor, Fact Sheet #15: Tipped Employees Under the FLSA (tip credit, notice, state law, dual jobs)dol.gov
- U.S. Department of Labor, Tip Regulations under the FLSA (regulatory history 2020–2024)dol.gov
- 29 CFR 531.56, “More than $30 a month in tips” (dual jobs)ecfr.gov
- 29 CFR 531.59, The tip wage creditecfr.gov
- Federal Register, Tip Regulations Under the FLSA; Restoration of Regulatory Language (December 17, 2024)federalregister.gov
Last verified:
Checked DOL Fact Sheet #15 ($2.13, $5.12, $7.25, weekly make-up, the five notice items, state law, dual jobs), DOL’s tip regulations page (2021 rule, Fifth Circuit decision, December 2024 restoration), 29 CFR 531.56 and 531.59 as current on eCFR, and the December 17, 2024 Federal Register rule (20 percent or 30 continuous minutes).
Still open: The restored rule doesn’t say how much unrelated work turns part of your shift into a separate non-tipped job, and DOL’s current pages give no number. DOL’s pages don’t say whether a new rule is planned. Side-work limits under state law aren’t covered here.