Your overtime line shows $3.20 an hour. That is illegal.
You are a server. You worked 48 hours. Your hourly cash wage is $2.13, and your overtime line shows $3.20 an hour. That number breaks federal law.
The Fair Labor Standards Act requires overtime for tipped workers to be calculated on the full minimum wage of $7.25 an hour. The tip credit reduces what the employer pays you for straight time. It does not reduce the base for your overtime rate. The difference on a single 45-hour week is $28.78 in cash wages alone, before you count the tips your employer was never entitled to credit against.
If you receive more than $30 per month in tips, you are a tipped employee under federal law. That threshold determines which set of rules applies to your pay stub.
What the tip credit actually does
The tip credit is a deduction the employer takes from what it owes you, not a separate payment stream.
The federal minimum wage is $7.25 an hour. The tipped minimum cash wage is $2.13 an hour. The gap, $5.12 an hour, is the tip credit. The employer can claim that credit only if three conditions hold: your tips average at least $5.12 an hour, you keep all your tips outside a valid tip pool, and your total earnings including tips meet or exceed $7.25 an hour. If your tips fall short, the employer must pay the difference. That obligation is not optional.
The tip credit reduces your regular cash wage. It does not reduce the base wage used to calculate overtime.
Why the overtime rate changes
Your overtime rate is 1.5 times the full minimum wage. Then the employer subtracts the tip credit.
The federal formula:
- Full minimum wage: $7.25 an hour
- Overtime rate before credit: 1.5 × $7.25 = $10.875 an hour
- Tip credit: $5.12 an hour
- Cash wage for overtime: $10.875 minus $5.12 = $5.755 an hour
Your employer pays you $5.76 an hour in cash for overtime hours. Your tips cover the rest, up to the full $10.875 overtime rate.
Many employers calculate overtime on the tipped minimum wage instead: $2.13 × 1.5 = $3.20 an hour. That is illegal.
Reconstruct a real 45-hour paycheck
You worked 45 hours in one workweek. Your employer uses the federal tipped minimum wage.
Regular hours (40 hours): - Cash wage: 40 × $2.13 = $85.20 - Tip credit claimed: 40 × $5.12 = $204.80
Overtime hours (5 hours): - Overtime rate: $10.875 an hour - Cash wage for overtime: 5 × $5.755 = $28.78 - Tip credit for overtime: 5 × $5.12 = $25.60
Total cash pay before tips: $85.20 + $28.78 = $113.98 Total tip credit claimed: $204.80 + $25.60 = $230.40
Your tips must cover at least $230.40 to justify the full tip credit. If they do not, the employer owes you the shortfall.
Check your own numbers now
Pull your last pay stub. Find the overtime hours line. Multiply those hours by $5.76. If the number on the stub is lower, the employer calculated overtime on the tipped minimum wage. Document the gap. Screenshot the stub. Photograph your handwritten hours log. Those two items are enough to start.
Next, check your state's rules. Some states ban the tip credit entirely. Others set a higher minimum wage, which changes the overtime math. When state and federal law conflict, the higher standard applies to you.
State rules that override the federal calculation
States with no tip credit
California prohibits the tip credit. You must receive the full state minimum wage in cash, and your overtime is calculated on that full amount. Tips are extra.
Oregon also bans the tip credit. Tipped employees receive the full minimum wage. The employer cannot claim any credit against tips for overtime calculations.
States with higher minimum wages
New York sets different rates by industry and location. Restaurant workers in New York City operate under different numbers than those upstate. The overtime calculation follows the applicable full minimum wage, not the federal $7.25. Check the New York Department of Labor website for the current rate in your county and industry.
Alaska requires daily overtime: over 8 hours a day at 1.5x, plus weekly overtime over 40 hours. The tip credit interacts with both thresholds. Contact the Alaska Department of Labor for the current minimum wage figure, which updates annually.
Nevada requires daily overtime over 8 hours at 1.5x for employees earning less than 1.5 times the state minimum wage. A 2024 ballot measure changed daily overtime rules for some workers. Confirm your eligibility with the Nevada Labor Commissioner before assuming the federal calculation applies.
Colorado triggers daily overtime over 12 hours at 1.5x, plus weekly overtime over 40 hours. The state minimum wage is set annually. Use the Colorado Department of Labor and Employment's current figure as your base for the overtime calculation.
Where to find the official number
The US Department of Labor publishes the federal minimum wage and tip credit rules at dol.gov/agencies/whd. Your state labor agency publishes the state minimum wage and any tip credit restrictions. Look up both before you run the calculation. A price is a fact with an expiry date: the federal $7.25 floor has held since July 2009, but state figures change, sometimes every January. Always pull the current number from the agency that sets it.
Service charges are not tips
A tip is voluntary. A service charge is mandatory. The distinction changes your overtime rate.
When a restaurant adds an 18% charge to a large-party check, that money belongs to the employer. The employer can distribute it or keep it. For overtime purposes, service charges count as wages. They get included in your regular rate of pay, which can raise your overtime rate.
Tips belong to you. The employer cannot take them outside a valid tip pool limited to employees who customarily receive tips.
If your employer calls a mandatory charge a "tip" but keeps a portion, two things are true: the payment is misclassified, and your overtime rate may be wrong. The IRS treats service charges as payroll wages subject to different reporting than tips. That paper trail matters if you need to prove a violation.
Six violations to check for right now
Overtime calculated on the tipped minimum wage. The most common error. Your stub shows $3.20 an hour for overtime. It should show $5.76. Fixing this one line recovers $2.56 per overtime hour in cash, before the tip credit adjustment.
Shortfall not made up. If your tips do not cover the tip credit amount, the employer must pay the gap. Some employers omit this step. Add your cash wage and tips for the week. Divide by hours worked. If the result is below $7.25, you are owed money.
Full tip credit taken during non-tipped work. Rolling silverware, cleaning, and prep work are not tipped duties. If you spend more than 20% of a shift on non-tipped tasks, the employer cannot claim the full tip credit for those hours. The Department of Labor enforces this rule under the "dual jobs" provision.
Misclassification as an independent contractor. Tipped workers classified as 1099 contractors lose overtime protections entirely. This is usually illegal. The DOL uses an economic reality test, not a job title.
Tips excluded from the regular rate. For overtime purposes, tips count toward your earnings. Some employers exclude them to lower the overtime rate. That is incorrect.
Tip pooling with non-tipped staff. Under federal rules, tip pools can include only employees who customarily receive tips. Cooks, dishwashers, and managers generally cannot participate unless the employer pays the full minimum wage and takes no tip credit.
What to do when the numbers do not match
Step one: run the federal calculation yourself
Use the formula above. Multiply your overtime hours by $5.76. Compare to your pay stub. Write down the difference.
Step two: check your state
Go to your state labor agency's website. Find the current minimum wage and any tip credit restrictions. Run the calculation again with your state's numbers. Use the higher result.
Step three: show your employer the math
Many violations come from payroll software misconfiguration, not intent. Print the calculation. Highlight the federal rule: overtime rate equals 1.5 times the full minimum wage, minus the tip credit. Ask for corrected pay stubs and back wages.
Step four: file a complaint if nothing changes
Contact the Department of Labor's Wage and Hour Division at 1-866-487-9243 or visit dol.gov/agencies/whd. You can also file with your state labor agency. You may recover back wages plus liquidated damages equal to the unpaid amount. The statute of limitations under the FLSA is two years, or three years for willful violations.
Step five: protect yourself going forward
Track your hours in a notebook or app, not on the employer's system. Record clock-in, clock-out, and any unpaid breaks where you continued working. Photograph your schedule. Save every pay stub. The DOL can investigate only what you can document.
For the general overtime formula that applies to all non-exempt workers, review the how to calculate overtime pay guide. The principles there apply to tipped employees once you substitute the full minimum wage as the base rate.