The reduced cash wage paid to tipped employees when an employer takes the tip credit. The federal tipped minimum wage is $2.13 per hour. Many states mandate higher tipped minimum wages or prohibit the tip credit entirely.
Why Tipped Minimum Wage matters for employers
The federal tipped minimum wage of $2.13 per hour has not changed since 1991. However, a majority of states require higher cash wages for tipped employees, and a growing number -- including California, Minnesota, Oregon, Washington, and Alaska -- have eliminated the tip credit entirely, requiring tipped employees to receive the full state minimum wage regardless of tips earned.
When a tipped employee's regular cash wage plus tips do not reach the applicable minimum wage in a workweek, the employer must make up the shortfall in that paycheck. Tracking weekly tip income and ensuring minimum wage compliance every workweek is a compliance obligation that often falls on the payroll function.
How BEG handles Tipped Minimum Wage for clients
BEG Managed Payroll handles Tipped Minimum Wage as part of a fully managed payroll service at $25-$45 per employee per month. Clients do not need to track compliance rules, filing deadlines, or calculation methods related to Tipped Minimum Wage on their own. Everything is included. Learn about BEG Managed Payroll.
Frequently asked questions
Do employers have to manage Tipped Minimum Wage themselves?
No. A managed payroll provider handles Tipped Minimum Wage as part of full-service payroll. BEG manages this for clients at $25-$45 PEPM with no system migration required.
What happens if Tipped Minimum Wage is handled incorrectly?
Errors related to Tipped Minimum Wage can trigger IRS penalties, state agency assessments, or employee disputes. Catching and correcting errors before filing is far less costly than after-the-fact corrections.
How does BEG handle Tipped Minimum Wage for managed payroll clients?
BEG tracks, calculates, and remits everything related to Tipped Minimum Wage as part of fully managed payroll. Clients do not need to monitor compliance -- that is included in the service at $25-$45 PEPM.
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About the author
Anthony Moretti is VP of Sales at Business Executive Group, where he builds BEG's managed payroll and HR service verticals for employers across Dallas-Fort Worth and nationwide. He writes the BEG Payroll Glossary to give employers plain-English answers on payroll and compliance.
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