Tipped Employees & Overtime

Do employees who earn tips get overtime pay?

Overtime rights under the Fair Labor Standards Act (FLSA) can be confusing for employees who earn tips. “Tipped employees” are generally categorized as employees who receive more than $30 per month in tips. The employee who earns the tip owns the tip, rather than the employer. However, the employer can use their employees’ tips to count toward something called a “tip credit,” which is a credit against the minimum wage obligation.

Definition of a Tipped Employee

According to the U.S. Department of Labor, a tipped employee is an employee who typically gets $30 or more in tips each month. People who employ tipped workers must pay them at least $2.13 in direct wages. If $2.13/month, combined with monthly tips, does not meet the federal minimum wage of $7.25, the employer is required by the FLSA to make up the difference.

Tip Credits Under the FLSA

According to the FLSA, employers are allowed to take a tip credit, which works toward the employer’s minimum wage obligation. This tip credit should equal the difference between the employee’s cash wage ($2.13) and the federal minimum wage (currently $7.25). So if a tipped employee earns a cash wage of $2.13, the employer can claim $5.12 (federal minimum wage minus the cash wage).

Tip Pools Under the FLSA

Tip pools are permitted under the FLSA. These are a type of tip-sharing arrangement that allows employees like waitresses, bussers, and bartenders. Tip pools would be in violation of the FLSA if an employee in the tip pool is not personnel who would normally earn a tip, such as a dishwasher or cook.

Common Overtime Problems with Tipped Employees

One potential problem employers can face when calculating overtime pay for tipped employees is when tip credits are involved. If an employer takes a tip credit, overtime is determined by multiplying the minimum wage by time-and-a-half (so $7.25 x 1.5) and then subtracting the tip credit ($5.12). Multiple that total by how many hours the employee worked overtime to arrive at the overtime wages due.

Tipped Employees Making Less Than $2.13/Hour

Are you a tipped employee who is not getting paid at least $2.13 an hour? Are you a tipped employee who is getting paid $2.13 an hour but monthly tips are not meeting the $7.25/hour minimum wage requirements and your employer is not making up the difference? You could be entitled to back wages and other damages. We encourage you to contact a Houston overtime lawyer at Bailey Peavy Bailey today to learn your legal rights and options concerning overtime pay!

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