Lauren Burke It’s a steady Saturday night and your restaurant employees are turning around tables without breaking a sweat. What you didn’t realize is the theater across the street just dismissed a huge crowd of hungry concert-goers. Oh and one of your servers isn’t feeling well and has to go home sick. This foudroyant sense of panic leads you to make the only logical decision-ask another server(s) to work overtime.
For small restaurant owners and even other small businesses that employ tipped workers, overtime laws can be a bit tricky when it comes to processing your payroll.
To start, here’s an explanation of what is considered a tipped employee.
If your employees “customarily and regularly” make more than $30 per month in tips, they are considered a tipped employee and are subject to special circumstances under federal law as well as certain state standards.
As an employer, you are prohibited from using an employee’s tips for any reason other than as credit against its minimum wage obligation to the employee (tip credit). According to the DOL, only tips actually received by an employee may be counted when determining whether the employee is a tipped employee and in applying the tip credit.
The federal minimum wage standards which includes those covering tipped employees are contained in the Fair Labor Standards Act (FLSA). More than a hundred million U.S. workers are covered by FLSA.
Because employers are able to pay tipped employees less than the federal minimum wage of $7.25 per hour, computing overtime pay differs from those employees not regularly receiving tips.
Here’s an example that explains how it works:
Bob’s Pub in Pennsylvania pays its employees a minimum of $2.13 per hour in direct wages (provided the wages and tips combined equals $7.25/hour).
John, a server at Bob’s Pub works 40 hours per week, but he was asked to work three hours of overtime Saturday night, totaling 43 hours for the week.
John is eligible for an overtime wage amount of $5.76 per hour for all hours worked past 40 hours.
How’d we get this number? The math:
Minimum wage in PA: $7.25 per hour
Hourly overtime pay: $7.25 X 1.5 = $10.88 per hour
Tip credit: $7.25 per hour – $2.13 = $5.12
So, the overtime hourly rate is $10.88 – $5.12 = $5.76
Important note: If an employer pays a tipped employee more than the minimum cash wage, the overtime calculation will need to be adjusted.
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