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Texas Employment Law GuideTex. Lab. Code Ch. 62 • 29 U.S.C. § 203(m) • 29 C.F.R. Part 531

Texas Minimum Wage & Tip Credit Laws: $7.25 Floor, $2.13 Tipped Wage & Tip Pooling Rules

In Texas, minimum wage regulations represent a combination of state statutory preemption and direct federal adoption of the Fair Labor Standards Act (FLSA). Unlike California, which bans tip credits and permits city-by-city minimum wage ordinances, Texas law sets a strict uniform baseline of $7.25 per hour, permits a $5.12 hourly tip credit, and strictly forbids local cities from raising wages on private employers. Understanding how wages, tips, and overtime interact in Texas is essential for workers, hospitality staff, and business owners.

Statutory Rate: $7.25 / hr
Tipped Direct Wage: $2.13 / hr
Max Tip Credit: $5.12 / hr
Tipped Overtime Direct: $5.755 / hr

1. The Texas Minimum Wage Act & Federal Conformance

The foundation of minimum wage law in the state is the Texas Minimum Wage Act, codified in Texas Labor Code Chapter 62. Under Section 62.051:

“An employer shall pay to each employee the federal minimum wage under Section 6, Fair Labor Standards Act of 1938 (29 U.S.C. Section 206).”

Because Texas law ties its statutory wage directly to Section 6 of the federal FLSA, the Texas state minimum wage has been $7.25 per hour since July 24, 2009. Unlike states such as California, Washington, or New York, the Texas Legislature does not tie minimum wages to Consumer Price Index (CPI) inflation adjustments. Unless the United States Congress amends the FLSA or the Texas Legislature amends Chapter 62, the statutory baseline remains $7.25 per hour statewide.

2. Statewide Municipal Preemption (Tex. Lab. Code § 62.0515)

One of the most frequently asked questions by Texas workers in metropolitan hubs such as Austin, Dallas, Houston, San Antonio, and Fort Worth is whether their local city has enacted a higher minimum wage to offset higher costs of living.

Texas Statewide Preemption (Tex. Lab. Code § 62.0515):

Under Texas Labor Code § 62.0515(a):

“Except as otherwise provided by this section, the minimum wage provided by this chapter supersedes a wage established in an ordinance, order, or charter provision governing wages in private employment, other than wages under a public contract.”
Statutory Exceptions to Preemption: Private-sector employment is not subject to an unconditional uniform $7.25 contractual floor. The statute explicitly recognizes three exceptions:
  • Public Contracts (§ 62.0515(a)): Section 62.0515(a) expressly excludes “wages under a public contract”, allowing municipalities and governmental bodies to establish higher living-wage requirements for their direct contractors.
  • Workforce Programs (§ 62.0515(b)): “This section does not apply to any state or federal job training or workforce development program.”
  • Government Agreements (§ 62.0515(c)): “This section does not apply to a minimum wage established by a governmental entity that applies to a contract or agreement, including a non-annexation agreement, entered into by a governmental entity and a private entity.” Under subsection (d), a “governmental entity” means a county, municipality, or other political subdivision of the state.

Consequently, while local cities cannot mandate higher wages on ordinary private businesses via ordinance, private entities performing public contracts or entering governmental agreements can be lawfully required to pay higher agreed minimum wages.

3. The Tipped Employee Wage & Tip Credit (Tex. Lab. Code § 62.052)

Under Texas Labor Code § 62.052, Texas adopts the federal structure for tipped employees under 29 U.S.C. § 203(m)(2). In the hospitality, restaurant, and bar industries, an employer may satisfy its minimum wage obligation through a combination of direct cash wages and a tip credit:

  • Direct Cash Wage Minimum: The employer must pay a direct wage of at least $2.13 per hour directly from payroll.
  • Maximum Tip Credit: The employer may claim a tip credit of up to $5.12 per hour ($7.25 minimum wage − $2.13 cash wage).
  • Combined Requirement: The direct cash wage ($2.13) plus actual tips received must equal at least $7.25 per hour for all compensable hours worked in the workweek.

Statutory Prerequisites & Monthly Thresholds ($20 State vs. $30 Federal)

An employer cannot automatically take a tip credit without meeting strict legal conditions:

  1. Tipped Employee Monthly Threshold: Under Texas Labor Code § 62.052(b), Texas statute defines a tipped employee as someone engaged in an occupation in which they customarily and regularly receive more than $20 a month in tips. However, under the federal Fair Labor Standards Act (29 U.S.C. § 203(t) & U.S. DOL Fact Sheet #15), the threshold is more than $30 a month. For all FLSA-covered employers, federal law ($30/month) controls because it provides greater employee protection.
  2. Advance Statutory Notice: Under 29 U.S.C. § 203(m)(2)(A) and 29 C.F.R. § 531.59(b), the employer must provide advance notice to the employee detailing the direct cash wage amount, the tip credit claimed, that the credit cannot exceed actual tips, and that all tips received must be retained by the employee (except for valid tip pools). Failure to give advance notice bars the tip credit completely, requiring payment of full $7.25/hr ($10.875/hr overtime) cash wages in direct pay. Tips received belong entirely to the employee and cannot offset this direct wage debt.
  3. Tip Retention & Lawful Tip Pooling: All tips received by the employee must be retained by the employee, subject only to valid tip pooling arrangements excluding managers and supervisors (29 U.S.C. § 203(m)(2)(B)). Unlawful tip pooling forfeits the employer's tip credit completely.

4. The Mandatory Tip Shortfall Make-Up Rule (29 C.F.R. § 531.59)

A widespread misconception among hospitality workers is that when business is slow, they must absorb the loss and take home only $2.13 per hour. This is completely unlawful under federal and Texas law.

Under 29 C.F.R. § 531.59(b):

“If the employee's tips combined with the employer's direct wages of at least $2.13 an hour do not equal the minimum hourly wage, the employer must make up the difference.”
Worked Example: Tip Shortfall Make-Up Pay

Consider a server in San Antonio who works 30 hours in a workweek at the $2.13 cash wage rate, but endures a slow week and earns only $50.00 in total tips:

  • Direct cash wages paid: 30 hours × $2.13 = $63.90.
  • Actual tips received: $50.00.
  • Total worker earnings before make-up: $63.90 + $50.00 = $113.90 (averaging just $3.80/hr).
  • Statutory minimum earnings required: 30 hours × $7.25 = $217.50.
  • MANDATORY SHORTFALL MAKE-UP PAY: $217.50 − $113.90 = $103.60.
  • Final Paycheck from Employer: $63.90 base wage + $103.60 make-up pay = $167.50.
  • Total Estimated Gross Earnings Before Taxes: $167.50 pay + $50.00 tips = $217.50 ($7.25/hr pre-tax gross compensation).

You can audit whether your employer owes you shortfall make-up pay using our interactive Texas Minimum Wage Calculator.

5. Tipped Overtime Rate: The $5.755/hr Direct Cash Rule

Calculating overtime for tipped employees is one of the most frequent areas of payroll non-compliance in Texas. Employers often mistakenly calculate overtime as 1.5 times the direct cash wage:

UNLAWFUL FORMULA: $2.13 × 1.5 = $3.195 / hr (Underpays worker by $2.56 per overtime hour!)

Under 29 U.S.C. § 203(m)(2), 29 C.F.R. Part 531, and official U.S. Department of Labor Fact Sheet #15, overtime must be computed on the full statutory minimum wage ($7.25/hr), not the direct cash wage:

  1. Full statutory overtime standard: $7.25 × 1.5 = $10.875 / hour.
  2. Subtract the maximum allowable tip credit: $10.875 − $5.12 = $5.755 / hour.
  3. Mandatory Direct Overtime Cash Pay: The employer must pay at least $5.755 per overtime hour in direct cash wages.

Notice: Under federal regulations, an employer cannot claim a higher tip credit on overtime hours than on regular hours. The tip credit remains capped at $5.12/hr.

6. Tip Pooling Legality, Manager Exclusions & The Sole-Service Exception

Mandatory tip pooling (or “tip-outs”) is common in restaurants and bars across Texas. However, federal law establishes rigid rules governing who may participate in a tip pool:

A. The Absolute Ban on Managers & Supervisors (29 U.S.C. § 203(m)(2)(B))

Under the FLSA amendments codified at 29 U.S.C. § 203(m)(2)(B):

“An employer may not keep tips received by its employees for any purposes, including allowing managers and supervisors to keep any portion of employees' tips, regardless of whether the employer takes a tip credit.”

Whether an employee is a “manager” or “supervisor” is determined by the FLSA executive exemption duties test (29 C.F.R. § 541.100): anyone whose primary duty is management, who regularly directs two or more employees, or who possesses the authority to hire, fire, schedule, or discipline workers can NEVER receive tips from a tip pool. Allowing a manager to participate in a tip pool invalidates the employer's tip credit and requires payment of full statutory minimum wages ($7.25/hr regular, $10.875/hr overtime) in cash for all hours worked.

Sole-Service Tip Retention Exception (29 C.F.R. § 531.54(c)(2), DOL Fact Sheets #15 & #15B):

While managers and supervisors can never participate in or receive disbursements from employee tip pools, a manager or supervisor may keep tips that they receive directly from customers for services that the manager directly and solely provided without the assistance of any other employee.

B. Front-of-House vs. Back-of-House Participation

  • When a Tip Credit IS Claimed: The tip pool is restricted to employees in customarily and regularly tipped roles (front-of-house: servers, bussers, runners, bartenders). Back-of-house staff (cooks, dishwashers) cannot participate.
  • When NO Tip Credit is Claimed (Full $7.25+ Cash Wage Paid): The tip pool may be shared with back-of-house employees (cooks, dishwashers), but managers and supervisors remain strictly barred from receiving pooled tips.

7. Youth Opportunity Wage & Other Statutory Exemptions

Both the FLSA (29 U.S.C. § 206(g)) and Texas Labor Code Subchapter D outline narrow sub-minimum wage allowances:

  • FLSA Youth Minimum Wage: An employer may pay a youth opportunity wage of $4.25 per hour to employees under 20 years of age during their first 90 consecutive calendar days of employment with that employer. Upon turning 20 or reaching 90 calendar days, the wage must immediately rise to at least $7.25/hr.
  • Student Learners & Apprentices: Employers with valid U.S. Department of Labor sub-minimum wage certificates may pay reduced rates to certified vocational students.
  • Texas Agriculture & Domestic Exemptions: Texas Labor Code § 62.151 exempts certain immediate family members, agricultural workers on small family farms, and casual babysitters from statutory state minimum wages.

8. How to File an Unpaid Minimum Wage Claim in Texas

If your Texas employer has failed to pay the $7.25 minimum wage, failed to pay mandatory tip shortfall make-up wages, paid sub-statutory overtime on tipped wages, or unlawfully distributed employee tips to managers, you have statutory remedies:

  1. Texas Workforce Commission (TWC) Wage Claim: Under Texas Labor Code § 61.051(c), you must file a formal wage claim with the TWC within 180 calendar days of the date the wages were originally due. The TWC investigates and issues binding administrative preliminary wage determinations.
  2. Federal DOL WHD Complaint: You may file an administrative complaint with the U.S. Department of Labor Wage and Hour Division (WHD), which enforces the FLSA nationwide.
  3. Private Civil Lawsuit: Under the FLSA (29 U.S.C. § 216(b)), employees may file a federal lawsuit to recover unpaid wages, an equal amount in liquidated damages (double damages), and mandatory attorneys' fees within 2 years (or 3 years for willful violations).