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Wage 'Tips' for Employers and Employees

Wage payments owed to tipped employees are frequently mishandled by employers. Under most circumstances, employers of tipped workers are permitted to pay lower wages than the standard minimum wage.

Tip Credit:

Employers can do this because of a concept known as a "tip credit." Employers of tipped workers must follow certain regulations to take advantage of the "tip credit," including providing the employee notice of the tip credit arrangement. Typically tips received by employees will more than make up the difference in wages lost from not being paid minimum wage. However, if the tips do not make up the difference in wages, then the employer must step in and do so.

In Maryland, the wage and hour law closely mirrors Federal law. As of May 1, 2016, the Maryland minimum wage is $8.25 an hour. Currently, using the Maryland State minimum wage the allowable tip credit is $4.62 dollars.


Employers cannot take a larger tip credit in overtime situations. Most workers understand that non-exempt (Department of Labor) employees are required to be paid time and half for overtime. You have probably seen an advertisement on television depicting a stressed family member at the dinner table discussing their lack of overtime. For the most part, tipped employees are no exception to the overtime rule. Tipped employees are paid time and a half for any hour worked over 40 hours in a given week. Employers must pay tipped employees time and a half based on the regular minimum wage and not the tipped employee minimum wage.

Misapplying these rules could have significant consequences. Please note that some local jurisdictions may have different minimum wage requirements. Please contact Thatcher Law Firm, LLC with any questions. We represent both employees and employers in wage and hour disputes.

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