Howdy! Do you or someone you know work at a job where you receive tips and, because of that, you’re paid less than the minimum wage? Have you ever wondered how overtime is calculated for tipped employees? Hint: It’s not your sub-minimum wage rate times 1.5. Not all employers know this, though, so I thought I’d show you all how the math works. Yay math!
Ok, let’s see you work somewhere in the United States where you go by the federal minimum wage: $7.25/hour. If you’re a tipped employee, you’re probably receiving $2.13 an hour, but it is important to remember that the minimum wage is still $7.25 per hour. The reason you’re getting $2.13 is that the law allows your employers to take a $5.12/hour “tip credit.” This means that your employer is taking $5.12/hour of your tips and then paying them back to you as wages.
The tip credit amount does not change when you go in to overtime. So, the overtime rate is $7.25 time 1.5 = $10.88 minus $5.12 (the tip credit) = $5.76 per hour. It’s not $2.13 * 1.5 = $3.20. If your employer is paying you $3.20 as your overtime rate, they’re cheating you.
The fact that the $5.12 an hour tip credit is technically a wage and not a tip has some fun side effects. For example, if you take vacation pay or sick leave (assuming you get either of those), your wage is $7.25 at a minimum. Also, and I’m sure you know this already, if for whatever reason, you make less than $5.12 an hour in tips for a pay week, your employer has to make up the difference.
This also affects your tip share calculation. You know what tip share is, right? It’s the amount of your tips the company takes and then redistributes to support works like greeters and runners (but not kitchen employees, because that would be very illegal and if someone is doing that, please make them stop.) Anyway, it’s not bullshit enough that companies get to pay people less than minimum wage, take a portion of their tips, and pretend like the company is paying it to them. They also can make you surrender part of your tips to pay other sub-minimum wage employees.
Anyway, most states have guidelines limiting how much of your tips they can take for tip share. The fact that the first $5.12/hour in tips are considered wages and not tips is super important for this calculation. You work 5 hours, you make $50 in tips, you have to tip out $10 to the greeters. That’s, what, 20% of your tips. That’s not great, but it’s not terrible. But wait! There’s $25.60 in tip credit in those tips you made (5 hours * $5.12). That means you only received $24.40 in tips, and you’re giving up 41% of your tips in tip share. In most states, that would be considered an illegal tip sharing arrangement (check out section 3b of this).
Shockingly few employers are aware of the labor laws governing sub-minimum wage employees, particularly owners of small businesses. Please spread this around to anyone you know who works at a job where they make less than minimum wage. And don’t take my word for what the law is. Here are the U.S. Department of Labor’s guidelines: http://www.dol.gov/whd/regs/compliance/whdfs15.pdf
The more you know…