Tip Credit Rules in Texas: Tipped Worker Pay Rights

The Fair Labor Standards Act (FLSA), 29 U.S.C. § 206(a)(3), permits employers to pay a lower minimum wage to employees who customarily receive tips. The federal tip credit rate is $2.13 per hour, provided that employee tips, combined with the employer's contribution, meet or exceed the federal minimum wage of $7.25 per hour. If an employee's tips fall short of this combined amount, the employer must pay the difference to bring the employee's total compensation to at least $7.25 per hour.

Employers must satisfy three conditions to use the tip credit: (1) they must inform employees in advance that they are using the tip credit and how much the tip credit is; (2) they can only use the tip credit for tips the employee actually receives; and (3) if tips plus the $2.13 wage do not equal at least $7.25, the employer must make up the difference. The FLSA is enforced by the U.S. Department of Labor (DOL), Wage and Hour Division.

Employees have the right to keep all tips they receive. Employers cannot require employees to share tips with managers or owners, participate in tip pools with non-tipped employees, or confiscate tips for any reason. This applies to all employers covered by the FLSA, which includes most private employers with gross annual sales of $500,000 or more.

Texas does not have a state minimum wage law that supersedes federal law. Instead, Texas defers entirely to the federal tip credit rules under the FLSA, 29 U.S.C. § 206(a)(3). This means the $2.13 per hour tip credit rate and the $7.25 per hour combined threshold are the law in Texas; there are no stronger state-level protections that increase the tip credit rate or lower the $7.25 floor.

Texas Property Code § 92.008 adds a critical state protection: it explicitly prohibits employers and managers from confiscating, requiring the surrender of, or otherwise taking any portion of tips earned by an employee. This statute reinforces federal law but provides a state-level remedy for tip confiscation or misappropriation. Under this statute, an employer cannot retain tips for any purpose, including alleged breakage, cash register shortages, or shared restaurant expenses.

All employers in Texas with employees who receive tips are covered by federal tip credit rules. Texas has no carve-out for small employers or specific industries. The protections apply equally to servers, bartenders, bell hops, valet parkers, and any other role where tips are customary.

State-specific remedies include pursuing a claim under Texas Property Code § 92.008 for tip confiscation in Texas state court. Additionally, employees may file a claim with the Texas Workforce Commission (TWC) Labor Commissioner under the FLSA. Texas does not provide additional remedies beyond federal law for tip credit violations (such as enhanced damages or treble pay), but the state explicitly bans tip confiscation with potential civil liability.

Tip credit does not apply to employees who do not customarily and regularly receive tips. The DOL interprets this narrowly—the occupation must be one where tipping is a normal, expected part of compensation. Employees in non-tipped positions (such as cooks, dishwashers, busboys without direct customer interaction, or back-of-house staff) must receive the full minimum wage even if working in a tipped establishment.

Employers cannot use the tip credit unless they provide proper notice to the employee before or at the time the tip credit is implemented. The notice must clearly state: (1) the tip credit amount ($2.13); (2) that tips must bring the total to at least $7.25; and (3) that the employer will make up any shortfall. Failure to provide this notice can invalidate the tip credit for that employee.

Under Texas Property Code § 92.008, an exception carved out by statute is tip pooling—but only among employees who customarily receive tips. Tip pooling arrangements between tipped and non-tipped staff (e.g., requiring servers to give a percentage of tips to cooks or dishwashers) may violate the statute if the non-tipped employee does not customarily receive tips from customers. However, the FLSA permits tip pooling among employees to whom the tip credit applies.

Employers cannot use the tip credit for hours in which the employee performs substantial duties that are not tip-producing. For example, if a server spends significant time on non-customer-facing work (prep, cleaning, inventory), some portion of that time may fall outside the tip credit. The DOL allows up to 20 percent of a tipped employee's shift to consist of non-tip-producing work. Any time beyond 20 percent may require payment of the full minimum wage.

Step 1 — Document Everything: Keep detailed records of your hours worked, the hourly wage you were paid, tips you received (including the date and amount), and any written communication about tip credit policies. Photograph or save any employee handbook pages, notices, or wage statements mentioning tip credit. Record the dates you reported tips to your employer if required. Save pay stubs and compare the hourly rate paid to you; if it is less than $2.13 and tips do not bring you to $7.25, you have documentation of a violation.

Step 2 — Submit an Internal Complaint: Before filing with a government agency, request a meeting with your manager, HR department, or payroll to explain the discrepancy. Ask in writing (email or letter) for clarification on whether the tip credit is being applied and, if so, request to see the written notice that must be provided by law. Ask whether your employer has calculated total compensation and made up shortfalls when your tips fell below the required threshold. Retain copies of all internal communications. Many violations are corrected quickly once raised internally.

Step 3 — File a Wage Complaint: If internal resolution fails, file a complaint with the Texas Workforce Commission (TWC) Labor Commissioner under the FLSA. Visit the TWC website at twc.texas.gov and locate the Wage and Hour Division complaint portal. Alternatively, file with the U.S. Department of Labor (DOL) Wage and Hour Division. The DOL's online complaint tool is at www.dol.gov/agencies/whd/complaints. You have up to two years to file (three years if the violation was willful). Provide: (1) your name and contact information; (2) your employer's name, address, and phone number; (3) dates of employment; (4) the hourly wage you were paid; (5) your average daily tips; (6) dates when shortfalls occurred; and (7) any documentation of non-payment or tip confiscation.

Step 4 — Expect the Investigation: The TWC Labor Commissioner or DOL Wage and Hour investigator will contact your employer and request payroll records, timekeeping records, tip reports, and wage statements. The investigator will verify whether proper notice of tip credit was given and whether your employer made up shortfalls when required. This process typically takes 30 to 90 days. You will be interviewed about your work duties, tips received, and any complaints you made. Be truthful and refer to your documentation.

Step 5 — Consult an Employment Attorney: Before filing or after receiving an investigator's report, consider consulting a Texas employment attorney specializing in wage and hour law. An attorney can evaluate the strength of your claim, advise on remedies (back pay, liquidated damages equal to unpaid wages, attorney fees, and costs), and represent you if the employer contests the investigation or if the case requires litigation. Many wage and hour attorneys work on contingency, meaning they take a percentage of the recovery and you pay nothing upfront.