Employment laws, and particularly minimum wage laws in the United States are not clear or straightforward to follow, especially when you are looking at the tipped minimum wage, and tipped employees in Texas.
Workers at restaurants, bars, hotels, cruise ships, and other service providers often expect to be paid a relatively small hourly wage supplemented heavily by tips (gratuities). Many service-industry workers in Texas base their entire pay on tips and rely on them to cover their living expenses and lifestyle.
So, What is a Tipped Texas Employee?
A tipped worker in Texas is somebody who earns their wages through tips rather than a fixed salary or higher hourly rate that meets or exceeds the minimum wage in the state. Federal law establishes the rules of what is considered a tipped employee vs. a non-tipped employee.
In Texas, if an employee receives more than $20 or more per month in tips, they are considered to be a tipped employee by federal standards. These employees often include workers such as bartenders, servers in Texas, some hotel workers (like bellhops and porters), valet car parking attendants, and more. The laws surrounding the definition of a Texas tipped employee follow the federal guidelines.
Tipped Employees and the Texas Tipped Minimum Wage
To comply with Texas minimum wage laws, employers must ensure that when including tips, their employees that are 18 years of age or older are being paid at the very least the state minimum wage rate set for Texas tipped workers, which is the same as the federal minimum wage and, also known as the Texas tipped minimum wage for employees. If those employees are not making that minimum pay rate, it is then the employer’s responsibility to make up the difference which is 29% of the regular minimum wage of $7.25 per hour.
There are many factors that contribute to the employment law in Texas that will impact how employers handle tipped employees. Understanding the standard minimum wage in Texas, the federal laws controlling wages, and how pay and wages work for tipped employees is pivotal if you are considering starting a service-related business with tipped employees.
The tipped minimum wage in Texas for 2022 is $2.13 per hour. The current minimum wage in Texas in 2022 for those over the age of 18 years old is $7.25 per hour for non-tipped employees. If an employee works more than 40-hours per week then they are entitled to be paid overtime. This is called “time and a half pay” and is equal to one and a half times (1.5) an employee’s normal hourly wage.
Texas law requires the Texas Fair Labor Standards Division to calculate a minimum wage increase each year. The annual calculation is based on the percentage increase in the state’s Consumer Price Index (CPI) previous 12-month period from when the calculation occurs.
Fair Labor Standards Act (FLSA) and Tipped Employees
The Federal Fair Labor Standards Act, also known as the FLSA, is a federal law from the U.S. Department of Labor. This law establishes a national minimum wage, defines classifications for employees, and covers other essential standards and requirements for Texas employers.
Federal law requires that employers make tipped employees aware of the cash wage paid. They must also let them know about the tip credit, and explain any tip pooling systems at the workplace. Currently, the national direct hourly salary is only $2.13 per hour.
Tip Credits and the Minimum Cash Wage in Texas
Since the rules for tipped employees are different than non-tipped employees, there are other ways that employers can calculate the minimum amount earned by a tipped employee. One of these ways is through tip credits.
The Texas tip credit is the same as the federal tip credit, which is currently $5.12 per hour (71% of the applicable minimum wage) – this means that employers can claim a $5.12 hourly credit against the tipped employee’s minimum wage. This credit effectively turns the $7.25 minimum wage into a $2.13 per hour minimum wage (29%) that employers must pay to tipped employees no matter how much they earn.
Let’s assume a tipped employee (bartender, server, etc.) in Texas earns, on average, less than $5.12 per hour during the working week as the tipped portion of their earnings (an accumulation of their tips). In that case, the employer must pay the difference between the minimum cash wage ($2.13 per hour) what they made in tips per hour in a working week, and the total of $7.25 per hour. This is tipped credit against the minimum wage and it can be up to 71% or $5.12.
A minimum cash wage ensures that Texas tipped employees earn a wage, even if a slow workweek or other downturn occurs and they do not receive sufficient tips in a certain week or time period. This minimum wage rate ensures that servers and others in tipped roles in Texas that do not make enough with tips can still earn a weekly wage when working full-time of $290 ($7.25 x 40 hours).
Alternatively, some tipped employees in Texas will work more than 40 hours per week, especially if they are covering shifts for other employees, and may qualify for overtime pay. Additionally, the table below showcases the previous Texas tipped minimum wage rates over the years.
| State | Tipped Wage | Tip Credit | Year |
|---|---|---|---|
| Texas tipped minimum wage 2022 | $2.13 | $5.12 | 2022 |
| Texas tipped minimum wage 2021 | $2.13 | $5.12 | 2021 |
| Texas tipped minimum wage 2020 | $2.13 | $5.12 | 2020 |
| Texas tipped minimum wage 2019 | $2.13 | $5.12 | 2019 |
How Does This Affect My Business?
If you are planning to start (or purchase) a new business in Texas due to the abundance of fantastic opportunities in the Lone Start State, or simply considering Texas as a place to live and work due to the tremendous quality of life on offer, you should certainly take this information about tipped employees and the state minimum wage into account.
While you may want to speak with an employment attorney or accounting firm for legal and tax advice about your business, understanding the minimum wage laws for tipped employees can help you make an informed decision whether or not the state is right for you and your future plans.
In Texas, much the same as most other U.S. states, tipped jobs and the industries surrounding them are very important to the state’s economy. Today there are just over 48,000 eating and drinking establishments in Texas, and there are more than 1.3 million restaurant and food service jobs in the state!
If you have a claim related to employment, you can find out more information on the Texas Workforce Commission website. You can also file a complaint if you feel you are not being paid the correct minimum wage or overtime rate.
To file a complaint, call this number: 800-628-5115
