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How to Calculate Overtime Pay for Tipped Employees


The Fair Labor Standards Act (FLSA) is a federal law that establishes minimum wage, overtime, and other employment standards, affecting both private and public sectors of employment. There are many provisions within the FLSA that permit employers to avoid paying their employees minimum wage and/or overtime. One such provision is the “tip credit” offered to employers of “tipped” employees.

FLSA Tip Credit Explained

The FLSA permits employers of tipped employees to take a portion of its employees’ tips as a credit towards paying the employees minimum wage. Tipped employees are those who customarily and regularly receive more than $30 per month in tips. This can include both servers and bartenders, depending on the tasks completed while on the job.

All applicable employees must earn the current federal minimum wage of $7.25 per hour. Under the FLSA’s tip credit, an employer must pay its tipped employees a cash wage of $2.13 per hour. The employer can then take $5.12 per hour from its employees’ tips to reach the federal minimum wage of $7.25. If the employee does not earn at least $5.12 per hour, then the employer is responsible for making up the difference and paying the employee the federal minimum hourly wage.

Calculating the Regular Rate of Pay for a Tipped Employee

In determining the regular rate of pay for a tipped employee, both the cash wage and any tip credit must be included in the calculation. Any tips received in excess of the tip credit need not be included in the regular rate calculation. It is important to note that a service charge added to a bill is not a tip, and it must be included in the regular rate paid to employees

Calculating Overtime for a Tipped Employee

If an employee works two or more different types of work, for which different non-overtime rates of pay have been established, in a single workweek, then the employee’s regular rate of pay for that week is the weighted average of such rates. The employee’s total earnings, minus statutory exclusions, include the employee’s compensation during the workweek from all such rates and are then divided by the total number of hours worked at all jobs to determine the regular rate of pay.

Speak to Our Reliable & Compassionate Employment Law Attorneys

If you feel your rights under the Fair Labor Standards Act have been violated, or if you have any other questions regarding your employment rights, please get in touch with our skilled Birmingham employment law attorneys at Michel | King. Our top-notch legal team possesses 40 years of combined legal experience, and we are dedicated to helping clients of all backgrounds pursue justice.

Contact our law office online or by calling us at (205) 265-1880 to request a free case consultation. We are here to serve you.

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