The tip credit is the most conditional bargain in wage law: pay $2.13 an hour in cash, let tips cover the rest — but only if the notice was given, the math clears minimum wage every single workweek, the pool contains no managers, and the records prove all of it. Miss the notice and the credit is void from the start; the employer owes the full minimum wage difference for every hour in the recovery period.
This checklist walks the five collapse points in order: the five-element tip credit notice (signed, because unproven notice is no notice), per-workweek minimum wage math with the shortfall rule, tip pool composition where duties — not titles — decide who counts as a manager, side work limits, and the overtime calculation that must build from $7.25, not $2.13.
Who should use this payroll compliance checklist
- Restaurants, bars, and cafes taking a tip credit in Texas
- Operators setting up or restructuring tip pools
- Payroll administrators handling tipped overtime
- New food-service owners inheriting 'how we've always done it'
What it helps prevent
- Losing the tip credit entirely — owing full minimum wage back for the recovery period
- Tip pools that include managers and invalidate everything
- Notice failures that void the credit regardless of how well you paid
- Overtime calculated on $2.13 instead of the full minimum wage
- Deductions and walkout charges that drop pay below the floor
What’s inside
- Part 1 — Tip Credit Notice (do this first)
- Part 2 — Minimum Wage Math (every workweek)
- Part 3 — Tip Pool Rules
- Part 4 — Side Work and Dual Jobs
- Part 5 — Overtime for Tipped Employees
- Part 6 — Deductions and Records
Before you process payroll, terminate, classify, deduct, or respond to a claim, get the decision reviewed.
Faulkner HR Solutions helps Texas employers, nonprofits, municipalities, and growing businesses fix the people systems behind recurring workplace problems. If this resource raised a risk flag, do not guess your way through the next step.