Calculating Overtime Pay for Tipped Employees
A basic explanation of how to calculate overtime pay for non-exempt employees was provided in a previous blog post.
In the hospitality industry — most notably, restaurants — non-exempt employees like waiters regularly receive tips. The Fair Labor Standards Act (FLSA) defines tipped employees as those who “customarily and regularly receive more than $30 per month in tips.” 29 C.F.R. §531.56.
The FLSA permit employers to pay tipped employees less than the minimum wage — no less than $2.13 per hour — provided that the direct wages and tips received amount to the mandated minimum wage. At present, New Jersey’s Wage and Hour Law is identical to the FLSA requiring employers to pay tipped employees a minimum of $2.13 per hour.
Because employers may pay tipped employees less than the minimum wage of $7.25 per hour, the computation of overtime pay differs from those employees who do not regularly receive tips (as explained here).
The best way to explain how to compute overtime pay for employees who regularly receive tips is to give a concrete example.
Facts: The federal minimum wage is $7.25 per hour. New Jersey’s minimum wage is also $7.25 per hour.
At the Angry Bison restaurant, the employer pays a minimum of $2.13 per hour in direct wages to all waiters, provided that the wages and tips combined amounts to $7.25 per hour.
Evan, a waiter at Angry Bison restaurant, works 40 hours a week.
One day, the manager asks Evan to work overtime on Friday because one of the other waiters just quit on Thursday night. So, Evan is going to work from 12:00 PM to 11:00 PM on Friday — an extra three hours. So, by the end of the week, Evan will have worked 43 hours.
Question: What is the overtime wage amount that Evan is entitled to for each hour worked beyond 40 hours?
Answer: Evan is entitled to overtime wage amount of $5.76 per hour for all hours worked beyond 40 hours.
Here’s how the math breaks down:
Minimum wage: $7.25 per hour
Hourly overtime pay: $10.88 per hour ($7.25 per hour X 1.5)
Tip credit: $5.12 ($7.25 per hour – $2.13)
Overtime hourly rate = Hourly overtime pay ($10.88) – Tip Credit ($5.12) = $5.76 per hour for all hours worked beyond 40 hours
Naturally, if Evan was paid more than $2.13, Evan’s overtime hourly rate would be more than $5.76.
Employers who fail to pay tipped employees a minimum of $2.13 per hour or fail to pay the proper amount of overtime pay may be required to pay back-wages, liquidated damages, penalties, and where appropriate, attorney’s fees and costs.
Every few years, the minimum hourly rate goes up. Recently, the New Jersey legislature have been debating about increasing the minimum wage rate to $8.50 per hour. It is important for employers and employees keep up to date with these developments.