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Tip Credit

Employers in North Carolina are permitted to take a credit for a certain amount of tips earned by their employees toward the employers’ payment of the minimum wage. However, for an employer to be able to count tips as wages and take a tip credit towards the minimum wage, the state labor law requires that tipped employees be notified in advance and be permitted to retain all tips, and requires that the employer maintains accurate and complete records of tips received by each employee and such tips must be certified by tipped employees monthly or for each pay period. Tip pooling is permitted as long as the tipped employees retain at least 85 percent of the tips they receive, which means the employer must maintain accurate and complete records of the tips received and the amount of tips earned under the tip pooling arrangement.

In North Carolina, the maximum amount of an employee’s hourly tips that employers are permitted to credit toward payment of the minimum wage is determined by reference to the federal FLSA. N.C. Gen. Stat. § 95-25.3(f) provides that “tips earned by a tipped employee may be counted as wages only up to the amount permitted in section 3(m) of the Fair Labor Standards Act.” Under Section 3(m) of the FLSA, an employer is allowed to count as wages a portion of the tips that a tipped employee receives – and this credit is equal to the minimum wage established under Section 6(a)(1) of the FLSA and the amount the cash wage required to be paid such an employee on the date of the enactment of this Section 3(m) of the FLSA ($2.13). This will result in a three-step change to the cash wage required for tipped employees.

Effective Date

Minimum Wage

Tip Credit Allowed

Cash Wage

Jan. 1, 2007




July 24, 2007




July 24, 2008




July 24, 2009




Thus, effective July 24, 2008, when the minimum wage increased to $6.55 per hour, an employer may pay as little as $2.13 an hour to tipped employees, which remained the same when the minimum wage increased to $7.25 per hour on July 24, 2009, as long as each employee receives enough in tips to make up the difference between the wages paid and the minimum wage.

Employers must pay more than the hourly cash wage if the tipped employee earns less than the credit in tips per hour, as it is the employer’s responsibility to make sure that all tipped employees earn at least the minimum wage in cash wages and tips.

For more information about the state’s minimum wage, go to the Minimum Wage Fact Sheet.

N.C. Department of Labor
Wage and Hour Bureau
1101 Mail Service Center
Raleigh, NC 27699-1101
(919) 807-2796 or (toll-free NC only) 1-800-NC-LABOR
Web site:



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