Servers, bartenders and other tipped workers are often paid a low cash wage, which leads to a common question: how is overtime figured when the base pay is only $2.13? This guide explains the federal method, shows a full worked example and points out where state law changes the answer.
The short answer
Tipped employees are entitled to overtime like everyone else, but the math has a twist. Under the federal Fair Labor Standards Act (FLSA), the overtime rate for a tipped worker is based on the full minimum wage, not on the low cash wage the employer pays. The employer may still take the same tip credit it takes during regular hours, which means the cash wage for each overtime hour is higher than the regular cash wage. Using the federal figures, overtime hours must be paid at least $5.755 per hour in cash, with the rest of the required $10.875 made up by the tip credit.
Key federal numbers
Federal tipped-employee figures (FLSA)
| Item | Amount | How it is determined |
|---|---|---|
| Federal minimum wage | $7.25 per hour | Set by FLSA section 6 |
| Minimum cash wage for a tipped employee | $2.13 per hour | Set by FLSA section 3(m) |
| Maximum tip credit | $5.12 per hour | $7.25 − $2.13 |
| Overtime rate (before tip credit) | $10.875 per hour | 1.5 × $7.25 |
| Minimum cash wage for an overtime hour | $5.755 per hour | $10.875 − $5.12 |
A tipped employee is one who customarily and regularly receives more than $30 a month in tips. The employer may count a limited portion of those tips toward its minimum wage obligation, and this is the tip credit. To use it, the employer must tell the employee about the tip credit rules, and the employee must be allowed to keep all tips, except for a valid tip pool. If an employee's tips plus the cash wage do not add up to the minimum wage for the week, the employer must pay the difference.
Why overtime is based on $7.25, not $2.13
Overtime is one and one-half times the employee's regular rate. For a tipped employee, the regular rate is the full minimum wage the employer is required to pay: the cash wage plus the tip credit. It is not just the $2.13 cash wage. The Department of Labor's tip-credit regulations (29 CFR Part 531) and its Fact Sheet #15 describe the regular rate for a tipped employee in these terms. For an employee earning the federal minimum, the overtime rate is therefore 1.5 × $7.25 = $10.875 per hour.
Employers are allowed to take the same tip credit, up to $5.12, against the overtime rate. Subtracting it leaves the cash wage the employer must pay for each overtime hour: $10.875 − $5.12 = $5.755, which payroll systems typically round up to $5.76. In other words, the cash overtime wage rises, while the credit employers take stays the same. Overtime does not mean employers can take a bigger tip credit, and it does not mean tipped employees get overtime pay computed on $2.13.
Worked example: 45 hours at the federal minimums
A server in a state that follows the federal rules is paid the $2.13 cash wage and works 45 hours in a workweek. The calculation has four parts.
- Regular-hour cash wages: 40 hours × $2.13 = $85.20.
- Overtime-hour cash wages: 5 hours × $5.755 = $28.775, about $28.78.
- Total cash wages: $85.20 + $28.775 = $113.975, about $113.98.
- Tip credit needed: 45 hours × $5.12 = $230.40. The server's tips must cover at least this amount.
Check the result. The server must be guaranteed 40 × $7.25 = $290.00 for regular hours plus 5 × $10.875 = $54.375 for overtime hours, for a total of $344.375. The cash wages of $113.975 plus the tip credit of $230.40 equal exactly $344.375. If the server's tips for the week were only $180, the employer would have to pay the $50.40 shortfall on top of the cash wages. You can check any week with the Overtime Pay Calculator and total your hours, including breaks, with the Weekly Time Card Calculator.
What if the employee earns more than $2.13?
Many employers pay a cash wage above $2.13, and many states require a higher minimum cash wage or a smaller tip credit. In that case, the regular rate is the cash wage plus the tip credit actually taken, or the full minimum wage the employer is required to pay, whichever is higher. The same procedure applies: compute 1.5 times the regular rate, then subtract the tip credit the employer takes.
Here is a hypothetical example with a made-up state. The state minimum wage is $12.00, and the employer pays $8.00 in cash and takes a $4.00 tip credit. The regular rate is $12.00, and the overtime rate is 1.5 × $12.00 = $18.00. After subtracting the $4.00 tip credit, the cash wage for each overtime hour is $14.00. The employer cannot simply pay 1.5 × $8.00 = $12.00 in cash for overtime hours, because that would apply the multiplier to the cash wage alone.
Tips are not extra overtime pay
Tips belong to the employee, and they are not wages paid by the employer. Because of that, tips are not added into the regular rate for overtime purposes, apart from the tip credit that the employer is permitted to count. A server who earned unusually large tips in an overtime week does not get less overtime pay from the employer for that reason, as long as the employer pays at least the cash wage required by law and the tip credit is properly taken. An employer also may not keep tips or use them for anything other than the tip credit or a valid tip pool.
Hours that count toward overtime
All hours worked count toward the 40-hour threshold, including time spent on tasks that do not generate tips, such as setting up, cleaning, stocking and rolling silverware. Employers must follow limits on how much non-tipped work can be done at the tip-credit wage, and those limits have been the subject of changing guidance and litigation, so check the current DOL position. Pre-shift meetings, required training and off-the-clock side work also count. See what counts as hours worked. If you are also doing a non-tipped job for the same employer, such as working as a cook, your pay for the two jobs is combined to determine the regular rate.
State rules and what to look for on your paystub
Some states do not allow tip credits at all, and others set a cash wage far above $2.13, which changes every number above. The DOL publishes a state-by-state table of minimum wages and tip credits. Where state and federal law differ, the employee is entitled to the higher standard. Look at your pay stub for the hours, the cash rate and the rate used for overtime hours. If the stub shows overtime paid as 1.5 × $2.13 = $3.195 per hour, the overtime was likely calculated incorrectly under the federal rules. Learn how overtime is normally calculated in how to calculate overtime pay. If you believe the pay is wrong, keep a record of your hours and tips and contact the DOL Wage and Hour Division or your state labor agency.
Frequently Asked Questions
How is overtime calculated for tipped employees?
The regular rate is the full minimum wage, so overtime is 1.5 times that amount. The employer may subtract the tip credit. At the federal minimum, the cash wage for overtime hours is at least $10.875 − $5.12 = $5.755 per hour.
Is overtime 1.5 times $2.13 for servers?
No. Overtime for tipped employees is based on the full minimum wage, not on the $2.13 cash wage. Paying 1.5 × $2.13 would generally be underpayment under federal rules.
Do tips count toward overtime?
Tips are not wages paid by the employer, so they are not added into the regular rate. The employer may count the tip credit toward the required rate, as long as the employee actually receives enough in tips.
What if my tips are too low in an overtime week?
The employer must make up the difference so that cash wages plus tips equal the required minimum wage and overtime pay for the week.
Does my state change the tipped overtime rule?
Possibly. States set their own minimum wages and tip credits, and some do not allow tip credits. The higher standard applies, so check your state labor department.
Do non-tipped tasks count as hours worked?
Yes. All hours worked, including side work, count toward the 40-hour overtime threshold.
Related tools & guides
This guide is for general informational purposes only and is not legal, tax, or financial advice. Labor laws vary by state and change over time. Confirm your specific situation with your employer, HR department, or the U.S. Department of Labor.