The restaurant industry is plagued by numerous violations of federal overtime rules. Often these involve the mishandling of tips, but restaurant workers face other unique challenges in ensuring they are fairly paid the overtime they are owed. Fortunately, if you work in the restaurant industry, you don’t have to face these challenges alone. Our dedicated network of attorneys can help advocate for your right to fair pay.
Minimum Wages and Tips
One of the key problems that restaurant employees face involves tips and the minimum wage. The Fair Labor Standards Act (FLSA) sets the federal minimum wage at $7.25 per hour. Many state and local governments set the rate significantly higher. In those instances, the employer must pay the higher minimum wage.
Under federal rules, employers in the restaurant industry are allowed to claim a tip credit by paying their employees as little as $2.13/hour and allowing tips to make up the difference between that and the applicable minimum wage. However, the worker’s tips combined with the $2.13/hour rate must equal at least the $7.25/hour federal minimum wage (or higher). That means the maximum tip credit the employer can claim is $5.12/hour. If the lower wage and tips do not add up to the applicable minimum wage, the employer must make up the difference.
Overtime can be complicated when tipped work is involved, a problem that many restaurant workers know all too well.
An Example of How Tips and Overtime Should Work
The following example illustrates the basics of how tipped restaurant workers should be paid overtime. Suppose the employer pays its employee the minimum direct cash wage of $2.13/hour. The employee works 50 hours during a week and earns an average of $10 per hour in tips.
The first step is to calculate the employee’s regular rate of pay, as follows:
- $7.25/hour (federal minimum wage) x 50 hours = $362.50
- Because 10 of the 50 hours were overtime, the employee must be paid time and a half for those hours. An extra half must be added in for those overtime hours. $7.25/hour x 0.5 x 10 hours = $36.25
- The total amount the employer should pay the employee is $362.50 + $36.25 = $398.75
It must also be determined what the employer has to pay versus what the employee received in tips. In the above scenario, the employee earned an average of $10/hour in tips. The employer can claim the maximum tip credit of $5.12/hour because what the employee actually received in tips exceeds this. This is how the tip credit figures into the calculation:
- $5.12/hour x 50 hours = $256.00 (the total tip credit the employer can claim, which applies to all hours worked)
- $398.75 – $256.00 = $142.75 (the amount the employer will have to pay the employee to ensure the employee is properly compensated for overtime)
Common Overtime Problems for Restaurant Workers
Employees in the restaurant industry are faced with a host of overtime issues from employers who routinely flout the law. These are just a few examples:
Whether the employee should be paid in tips. Tipped workers are those who customarily and regularly receive at least $30 per month in tips. If the employer elects to use the tip credit, employees must be informed of the provisions of the law (FLSA section 3(m)) in advance.
Incorrect tip calculations. The above is a simple illustration of how tips should work with respect to hourly wages and overtime. Your situation may be more complicated depending on the actual tip wage your employer pays you (must be no less than $2.13/hour), the number of hours you work each week, and other factors. If you believe your employer is cheating you out of your wages, we can assist.
Tipped workers doing non-tipped work. For a while, there was a debate over whether tipped workers can be required to perform non-tipped work. Under rules that became effective in late 2021, employers may take a tip credit when an employee does work that is not “tip-producing” but is instead “directly supporting” of tip-producing work. However, directly-supporting work cannot be performed either more than 20% of the hours in the workweek for which the employer has taken a tip credit or for a continuous period of time that exceeds 30 minutes.
This is a somewhat complicated area that depends largely on the nature of the work the employee performs. If you are regularly being required to do non-tipped work, it’s worth having an attorney review your situation.
Tip pools. Employees must retain all of their tips, except to the extent that they participate in a valid tip pooling or tip sharing arrangement. Employers can generally require employees to participate in a tip pool or other arrangement. In this scenario, employees must chip in a portion of their tips, which are then divided among a group of employees.
The FLSA prohibits employers from keeping any portion of employee tips or from including supervisors or managers in the tip pool. This rule applies regardless of whether the employer takes a tip credit or pays employees the full minimum wage. If your supervisor or manager keeps a percentage of the tip pool, he or she is probably violating the law.
Under FLSA amendments made in 2018, employers that do not claim a tip credit and choose instead to pay employees the full minimum wage may establish a tip pool that includes non-tipped employees. However, employers that do claim a tip credit must restrict the tip pool to employees who customarily and regularly receive tips.
Paycheck deductions. Deductions made from an employee’s wages for items such as cash shortages, uniforms, or customer walk-outs are not allowed if the deductions reduce the employee’s wages below the minimum wage or reduce overtime pay. Deductions for items other than board, lodging, and other recognized facilities usually are not allowed in an overtime workweek.
Food credits. According to the FLSA, employers may take credits for food that is provided to the employee at cost. This usually comes in the form of an hourly deduction from the employee’s pay. The employer is not allowed to take credit for discounts that are given to employees on menu prices.
Meal break deductions. Employers cannot automatically deduct for meal breaks if the employee is required to work during the break. That means the employee must be relieved of his or her job duties and cannot be (for example) “on call” during the break.
Employees Have An Ally In The Lore Law Firm
There are other overtime issues common to all workers, including those in restaurants, such as averaging hours across more than one week or incorrectly claiming an employee is exempt from overtime pay. If you work in the restaurant industry and aren’t sure whether you’re being paid correctly, The Lore Law Firm can advise you. Start today by filling out our free, confidential client intake form.
