Alabama Minimum Wage for Tipped Employees: Tip Credit and Overtime

The Alabama minimum wage for tipped employees is $2.13 per hour in direct cash wages, with the employer counting your tips toward the remaining $5.12 needed to reach the federal $7.25 minimum. If tips don’t close that gap in any given workweek, your employer owes you the difference. Alabama has no wage law of its own, so these federal Fair Labor Standards Act rules are the only ones that apply.

Why Federal Rules Set Your Pay Floor

Alabama is one of a few states with no minimum wage statute.¹ The FLSA fills that vacuum for every covered employer in the state.

A 2016 state law closed off the other obvious workaround. Under Alabama Code Section 25-7-41, no county or city can require employers to pay more than state or federal law demands.² Local wage ordinances are void. Wherever you work in Alabama, the federal numbers are the only numbers.

How the $2.13 Cash Wage and Tip Credit Work Together

The tip credit is the mechanism that lets an employer pay less than $7.25 in direct wages. Your employer pays at least $2.13 per hour and takes a credit of up to $5.12 per hour against the tips you actually receive.³ Add them together and you get $7.25.

The credit can never exceed what you actually earned in tips. If you take home only $3.00 an hour in tips on a slow shift, the credit is capped at $3.00 and your employer owes the remaining $2.12 in cash to get you to $7.25.⁴

The same shortfall rule applies at the workweek level. If your cash wage plus tips don’t average $7.25 for every hour worked that week, the employer has to make up the gap.³ They can’t average a bad Tuesday against a strong Friday across different weeks, and they can’t skip the makeup pay just because tips normally run high.

In practice, some employers don’t track this carefully. Keep your own shift-by-shift log of hours worked and tips received. Those records are what you’ll need if you ever have to prove a claim.

What Your Employer Has to Tell You First

The tip credit doesn’t apply automatically. Before paying you $2.13, your employer must tell you in advance:

the cash wage they’ll pay you per hour (at least $2.13),
the tip credit amount they’re taking (up to $5.12 per hour), and
that all tips you receive are yours, except for amounts you contribute to a valid tip pool.

Skip the notice and the tip credit is lost. The employer then owes you the full $7.25 per hour in cash on top of whatever tips you keep.³ The federal statute doesn’t require the notice to be in writing, but verbal-only notice is far harder to prove later.

Tip Pooling and Who Can’t Share

Your employer can require you to share tips through a pool, but federal law flatly bars managers, supervisors, and business owners from receiving any money from one.⁵ That ban applies whether or not the employer takes the tip credit.

Someone counts as a manager or supervisor for this rule if they regularly direct the work of at least two full-time employees, have authority over hiring and firing, and have a primary duty of managing the business or a recognized department. An owner with at least a 20% equity stake who is actively involved in management is also covered.⁵ A manager can keep tips a customer hands them directly for service the manager personally provided, but can’t take from a shared pool or tip jar.

Pools typically include servers, bartenders, bussers, and other front-of-house workers who regularly receive tips. The employer has to distribute all collected tips no later than the regular payday for the workweek in which they were earned.⁶

Overtime Pay When You’re Tipped

Overtime is where many tipped workers get shortchanged. When you work more than 40 hours in a week, your overtime rate is calculated on the full $7.25 regular rate, not on your $2.13 cash wage. Time and a half on $7.25 is $10.875 per hour.⁷

The employer can still apply the $5.12 tip credit during overtime hours. That means the minimum cash wage for your overtime hours is $10.875 minus $5.12, or $5.76 per hour. Tips above the $5.12 credit don’t raise the regular rate, so earning more in tips doesn’t increase your overtime calculation.

Side Work and Dual Jobs

Tipped workers often spend part of a shift on tasks that don’t generate tips, like rolling silverware or restocking. The Department of Labor’s prior “80/20/30 rule” that capped this kind of side work was struck down in court and officially withdrawn in December 2024.

The older dual jobs rule still applies. If you hold two genuinely separate roles for the same employer, say serving on dinner shifts and doing janitorial work on others, the employer can take the tip credit only for your server hours. For the janitorial hours, you’re owed the full $7.25.³ The question is whether the non-tipped work is a different job function or just routine side duties tied to your tipped role.

What Actually Counts as a Tip

You qualify as a tipped employee only if you regularly receive more than $30 per month in tips.⁸ In any month you fall short of $30, the employer can’t take the tip credit at all and must pay the full $7.25 cash wage.

A payment counts as a tip only when the customer freely decides the amount. Mandatory service charges, like an automatic 18% gratuity on large parties, are not tips under federal law. That money belongs to the employer, who can distribute it as they choose, and it can’t be used toward the tip credit unless the customer can actually change or remove the amount.

If You’re Being Underpaid

If your employer isn’t making up shortfalls, is dipping into your tips, or isn’t paying overtime correctly, you can file a complaint with the Department of Labor’s Wage and Hour Division at 1-866-487-9243 or through the DOL website. Complaints are confidential: the DOL will not disclose your name, whether you filed, or what the complaint says. Your employer cannot fire, demote, or otherwise retaliate against you for filing or cooperating with an investigation.⁹

Bring documentation. Pay stubs, schedules, your own tip log, and any written communications about pay all strengthen the case and speed the investigation.

The remedies have real weight. An employer who violates minimum wage or overtime rules owes the unpaid wages plus an equal amount in liquidated damages, effectively doubling the recovery. An employer who illegally keeps tips or takes a tip credit they weren’t entitled to owes the full credit amount plus the kept tips, also doubled. Workers who win recover attorney’s fees and court costs, which makes it easier to find a lawyer to take the case. Willful violations can trigger criminal penalties of up to $10,000 in fines, with up to six months’ imprisonment for repeat offenders.¹⁰

1
U.S. Department of Labor. State Minimum Wage Laws
2
Alabama Legislature. Alabama Code Title 25-7-41 – Definitions; Limitations on Counties and Municipalities
3
U.S. Department of Labor. Fact Sheet 15 – Tipped Employees Under the Fair Labor Standards Act
4
eCFR. 29 CFR 531.59 – The Tip Wage Credit
5
U.S. Department of Labor. Fact Sheet 15B – Managers and Supervisors Under the Fair Labor Standards Act and Tips
6
eCFR. 29 CFR 531.54 – Tip Pooling
7
eCFR. 29 CFR 531.60 – Overtime Payments
8
Office of the Law Revision Counsel. 29 USC 203 – Definitions
9
U.S. Department of Labor. How to File a Complaint
10
Office of the Law Revision Counsel. 29 USC 216 – Penalties