Tipped Employee Overtime

Burke Brown | Payroll Experts, Inc

 

Happy Halloween everyone!  In the spirit of the scary holiday, I wanted to address something that can be a little scary and confusing….trying to understand some of the verbiage from the Fair Labor Standards Act.  The good news is I will keep it brief.

 

There has been a lot of confusion about the Overtime rate for tipped employees who make under minimum wage.  The Department of Labor says…where the employer takes the tip credit, overtime is calculated on the full minimum wage, not the lower direct (or cash) wage payment.

 

So let me interpret that…..you take the full minimum wage (Federal or State, whichever is more favorable for the employee) and multiply that by .5.  It is sometimes easier to think of as a guaranteed premium pay rather than overtime so you are not tempted to take the rate and multiply it by 1.5.

 

Below are a few examples:

 

If the employee’s rate is 2.13/hr and the minimum wage is $7.25/hr, the employee’s OT rate is (.5 * 7.25 = 3.625) + 2.13 = $5.755/hr.

 

If the employee’s rate is 4.50/hr and the minimum wage is $7.25/hr, the employee’s OT rate is (.5 * 7.25 = 3.625) + 4.50 = $8.125/hr.

 

If the employee’s hourly wage is above minimum wage overtime is figured at 1.5 times.

 

If the employee has wages at other rates (30 hours at 2.13 and 10 hours at 8.50) the rates are blended and it can get more complicated but that is a topic for another day.

 

Pretty scary huh?  The good news is we have you covered.  Hungry for more?  You can always check out the Department of Labor website to see what the FLSA says.   http://www.dol.gov/whd/regs/compliance/whdfs15.htm

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