Minimum Wage for Tipped Employees in Michigan: Rate, Notice, and Phase-Out

The minimum wage for tipped employees in Michigan is $5.49 per hour as of January 1, 2026, provided tips bring the worker’s total hourly earnings up to the full state minimum wage of $13.73. If tips fall short in a given workweek, the employer has to pay the difference. The $5.49 rate is 40% of the full minimum wage, and that percentage is scheduled to climb each year until the reduced tipped rate disappears entirely in 2030.¹

The $13.73 Floor and How Tips Fill It

Every hour you work has to pay at least $13.73 in 2026. Your employer can pay $5.49 of that in cash and count up to $8.24 of your tips toward the rest. That $8.24 is called the tip credit.¹

The math is done one workweek at a time. A big Saturday can’t rescue a slow Tuesday the following week. Total tips are compared against total hours worked within that single workweek, and if the per-hour average lands below $13.73 after adding the $5.49 base, the employer has to make up the shortfall on that pay period’s check. The framework sits inside the Workforce Opportunity Wage Act, Public Act 138 of 2014.²

Notice Requirements Before the Lower Rate Applies

An employer can’t just start paying $5.49 and hope it works out. Michigan law requires the employer to tell the employee that a reduced base rate is being used and that tips are expected to make up the difference.³ Federal law layers on more detail: the exact cash wage, the tip credit amount being claimed, and the employee’s right to keep all tips except those going into a valid tip pool.⁴

Skip the notice and the tip credit is invalid. The worker is then owed the full $13.73 for every hour worked, with no credit for tips received.

The Scheduled Phase-Out Through 2030

The tipped rate is climbing on a fixed schedule set by legislation passed in February 2025. The percentage of the full minimum wage that employers must pay in cash goes up as follows:⁵

January 1, 2026: 40% ($5.49 per hour)
February 21, 2026: 60% ($7.97 per hour)
February 21, 2027: 70% of the minimum wage
February 21, 2028: 80% of the minimum wage
February 21, 2029: 90% of the minimum wage
February 21, 2030: 100% — tip credit eliminated

The full minimum wage is also rising underneath these percentages. It reaches $13.73 in January 2026 and is set for $15.00 in January 2027.⁶ Because the tipped rate is a percentage of that moving target, each year’s dollar jump is larger than the percentage increase alone suggests. By February 2030, employers will owe every worker the full minimum wage in cash regardless of how much the worker earns in tips.

Who Counts as a Tipped Employee

Michigan’s statute defines a tipped employee as one who receives gratuities in the course of employment and reports them for federal payroll tax purposes, without setting a dollar threshold.³ Federal law adds a concrete floor: more than $30 per month in tips, on a regular basis.⁴ Most Michigan employers treat the $30 federal threshold as the working line.

Classification also depends on what you actually do during a shift. Federal regulations distinguish between a worker holding two genuinely different jobs for the same employer — a hotel maintenance worker who also waits tables, for instance — and a server who spends part of a shift on related tasks like setting tables or brewing coffee. For the dual-job worker, the tip credit applies only to the tipped hours. For the server doing side work that supports table service, the credit applies to the whole shift.⁷

Tip Pools, Service Charges, and Overtime

Three rules sit alongside the base rate and often cause confusion.

Tip Pooling

When the employer takes a tip credit, only employees who regularly receive tips can be in the pool. Servers and bartenders are in; cooks and dishwashers are out. If the employer pays the full minimum wage without claiming any tip credit, the pool can include back-of-house staff too. Managers and supervisors are always excluded from the pool, whichever setup is used.⁸ A manager can keep a tip a customer hands directly to them for service they personally provided, but they cannot take a share of pooled tips. Owners with at least a 20% equity stake who actively manage the business count as managers for this rule.

Service Charges Are Not Tips

Automatic gratuities on large party checks, banquet fees, and bottle service charges are service charges under IRS rules, not tips.⁹ A tip has to be paid voluntarily, in an amount the customer freely chose, with the customer deciding who receives it. Service charges run through payroll like regular wages, and they can’t be used to satisfy the tip credit. An employer cannot bridge the gap between $5.49 and $13.73 with distributed service charge money.

Overtime

Tipped employees get overtime at 1.5 times the regular rate for hours past 40 in a workweek, and the regular rate is the full minimum wage, not the tipped base. In 2026 that means an overtime floor of $20.60 per hour ($13.73 × 1.5). The employer can still apply the tip credit to overtime hours, so the minimum cash obligation per overtime hour is $8.24 ($5.49 × 1.5), with tips expected to carry the rest up to $20.60.

If You’ve Been Underpaid

You have two paths. You can file a civil lawsuit within three years of the violation and recover the unpaid wages plus an equal amount in liquidated damages, along with attorney fees and costs if you win. Or you can file a complaint with the state’s Wage and Hour Division. If the agency finds reasonable cause and the employer refuses to pay, the state can sue on your behalf and on behalf of other workers at the same location. Employers also face civil fines of up to $1,000 per violation.¹⁰

Three years is a long window. Pay stubs, shift records, and your own tip records matter, because when there’s a dispute and the employer can’t produce clear records, the employee’s version of events tends to control.

1
Michigan Department of Labor and Economic Opportunity. Michigan’s Minimum Wage Set to Increase on Jan. 1, 2026
2
Michigan Legislature. Michigan Compiled Laws – Act 138 of 2014 – Workforce Opportunity Wage Act
3
Michigan Legislature. Michigan Compiled Laws – Chapter 408 – Section 414d
4
U.S. Department of Labor. Fact Sheet 15 – Tipped Employees Under the Fair Labor Standards Act
5
Michigan Legislature. House Legislative Analysis – Summary as Passed by the Senate/Enacted Version
6
Michigan Department of Labor and Economic Opportunity. LEO – Minimum Wage and Overtime
7
Federal Register. Tip Regulations Under the Fair Labor Standards Act – Restoration of Regulatory Language
8
U.S. Department of Labor. Fact Sheet 15B – Managers and Supervisors Under the Fair Labor Standards Act and Tips
9
Internal Revenue Service. Tips Versus Service Charges – How to Report
10
Michigan Legislature. Michigan Compiled Laws 408-419