Overtime for Tipped Employees

If you’re a tipped employee and an employer is not paying you your proper wages or overtime, contact overtime lawyer, Travis Hedgpeth, today for a free case evaluation.

Under the Fair Labor Standards Act, employers have a legal responsibility to pay the correct overtime wages to tipped employees. If you’re non-compliant with the FLSA guidelines, the law is bound to catch up with you. Your company will not only be required to settle all the unpaid wages but also face penalties that might be damaging to your business.

Learning how to calculate overtime for tipped employees can save you from unnecessary unpaid overtime lawsuits. You probably know that the federal minimum overtime pay is 1.5 times the employee’s regular hourly rate for over 40 hours in a workweek. While the one-and-a-half rate also applies to tipped employees, there are a few special rules to follow because their federal minimum wage is quite different.

The Federal Minimum Wage for Tipped Employees

Generally, the federal minimum wage for other employees is $7.25 per hour. When it comes to tipped employees, FLSA allows business owners to pay a lower minimum wage. The hourly rate for tipped employees is subject to a maximum tip credit of $5.12. An employer essentially subtracts that amount from the federal minimum wage to find a minimum cash wage.

From the explanation above, tipped employees are entitled to a federal minimum wage of $2.13 ($7.25 – $5.12). However, please note some states have higher minimum wages. For example, Arizona, Colorado, Florida, Michigan, New Jersey, and West Virginia pay above the minimum cash wage.

Others like Alaska, California, Minnesota, Washington, and Oregon require businesses to pay tipped employees at least the full state minimum wage before tips.

Therefore, we advise you to confirm the rate with your state’s Department of Labor or overtime lawyer. Make sure you stay up to date with the changes in minimum wage rates.

You are obliged to notify your workers about the tip credit and minimum cash wage amounts. Otherwise, you will have to pay the employees regular minimum wage besides allowing them to keep tips.

Overtime Calculation for Tipped Employees

Since you already know the minimum wage provisions, let’s dive into the most crucial part of this post.

And without further ado, here’s how to calculate overtime for tipped employees.

1) Multiply the federal minimum wage (not minimum cash wage) by 1.5
2) Subtract a tip credit from the totals in step one to find an overtime rate for tipped employees
3) Multiply the overtime rate by the number of overtime hours.

For a free legal consultation with Travis Hedgpeth, call (281) 572-0727.

Example

Let’s assume Emily works at your restaurant as a server. If your business follows the federal wage law, then your tipped employees like Emily will get an hourly cash wage of $2.13 once you claim the legally allowed maximum tip credit of $5.12.

If Emily worked for 55 hours in a workweek, how much will she receive as compensation for 15 hours?

Step 1: Federal minimum wage ($7.25) x premium overtime rate (1.5) = $10.88

Step 2: $10.88 – $5.12 (tip credit) = $5.76 (overtime rate for tipped employees)

Step 3: $5.76 x 15 (additional hours worked) = $86.4 (overtime pay)

Things are a little different for the first 40 hours Emily worked during that week, as she’s supposed to get paid at a rate of $2.13 per hour. In this case, she will earn $85.20 (40 x $2.13) in regular wages.

Her gross pay will be $86.4 +$85.20 = $171.2

If you need further clarification, feel free to get in touch with an overtime lawyer to help you determine if you’re paying your tipped employees the correct overtime rate.