Paying servers right: tip credits, tip pools and service charges in your state

Written for owners of restaurants, cafes and coffee shops, bars, takeout and delivery kitchens, food trucks and bakeries with seating in the US, with state detail for California, Texas, New York and Florida.

The short version

1. Check city, then state, before any tip credit.California allows no tip credit at all, New York sets its own cash wage, and cities like Chicago are phasing theirs down.
2. Give written tip credit notice first.Without notice, the credit falls away. You owe the difference for every hour worked, plus liquidated damages that can match it.
3. Keep managers out of the tip pool.Even if they work the floor, pay them a bonus from the house instead. Service charge money paid to staff is wages, not tips.

Server pay is where many restaurant wage claims start. Federal rules set a floor, but your state, and often your city, decides the answer: whether you can take a tip credit at all, what the cash wage must be, and how a service charge has to be treated. Get it wrong and liquidated damages can double the back pay.

Tipped wages in the big four states and beyond

• California: $16.90 statewide and no tip credit. Fast-food workers in limited-service chains of at least 60 establishments get at least $20, subject to exemptions (Lab. Code 1474 to 1476). As of Oct 2026.
• New York: New York City, Long Island and Westchester are $17.00 with a food service cash wage of $11.35; the rest of the state is $16.00 with $10.70 (12 NYCRR Part 146). As of Oct 2026.
• Texas: $7.25, with a $2.13 cash wage. As of Oct 2026.
• Florida: $15.00 from September 30, 2026 through December 31, 2027, with a tipped cash wage of $11.98. As of Oct 2026.
• Washington: $17.13 with no tip credit. Chicago and Michigan are phasing their tip credits down, so check the city before the state. As of Oct 2026.

For example, in Manhattan that share means $10,400 a year to repay plus $10,400 in liquidated damages.

Service charges are wages, not tips

A mandatory service charge is the restaurant's revenue, not a tip (29 CFR 531.55). If you pay it to staff, it is wages and it enters the regular rate for overtime. New York presumes any charge a customer would think is a gratuity belongs to the staff unless the bill says in clear terms that it is not (12 NYCRR 146-2.18 and 146-2.19). California bars any deduction from tips, card fees included (Lab. Code 351).

Overtime, breaks and minors

• Overtime is due over 40 hours a week federally. California adds overtime over 8 hours in a day and double time over 12 (Lab. Code 510).
• With a tip credit, overtime starts from time and a half of the full minimum wage: in Texas, for example, the overtime cash rate is $10.875 less the $5.12 credit, or $5.755 an hour.
• California: a 30-minute meal period before the end of the 5th hour and paid 10-minute rest breaks, with one hour of pay as a premium for each day either is missed (Lab. Code 512, 226.7).
• Minors: no one under 18 may operate power-driven meat slicers or bakery mixers (Hazardous Occupations Orders 10 and 11), and 14 and 15 year olds work at most 3 hours on a school day and not after 7 p.m. (9 p.m. from June 1 to Labor Day) (29 CFR 570.35). States add permits and stricter hours. As of Oct 2026.

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