Minimum Wage And Overtime Laws For Servers And Tipped Employees

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Chicago Illinois Tip-Credit Lawyers — Recover Your Owed Tips, Minimum Wages and Overtime Pay

Understanding Federal and Illinois Minimum Wage and Overtime Pay Laws for Tipped Employees – Minimum Wage and Overtime Laws for Servers and Tipped Employees

Special rules apply to the minimum wages and overtime that must be paid to employees working as tipped employees. If you work as a tipped employee, as a server, waiter, bartender or busboy, your employer must follow a specific set of rules and regulations.  Tipped employees in Chicago and across the United States in both fine and casual dining restaurants, often are not paid the minimum wages or overtime pay the law requires. When this happens, you should find and contact the best lawyer possible who is experienced in representing tipped employees.

Some of the illegal practices employers use to avoid paying servers and tipped employees their owed wages include:

Excessive Amounts of Non-Tipped Work/Dual jobs: It may be illegal to require a tipped employee to perform too much non-tipped work. When an employee performs both tipped and non-tipped job duties, the sub-minimum wage tip credit rate is available only for the hours spent for work performed in the tipped occupation. Where tipped employees are assigned to maintenance, or where tipped employees spend more than 20 percent of their time performing general preparation work, maintenance, opening or closing duties, no tip credit may be taken for the time spent in such duties. Where a substantial amount of time is spent by tipped employees performing non-tipped work, the employer may lose or forfeit the tip credit and the tipped employees may be entitled to receive the full cash minimum wage for all time worked.

Retention of tips: When an employee is paid less than the minimum wage – that is, paid a tipped credit rate – the law forbids any arrangement between the employer and the tipped employee whereby any part of the tip received becomes the property of the employer. A tip is the sole property of the tipped employee. Thus, the restaurant cannot keep of part of a server’s tips. Where an employer does not strictly observe the tip credit provisions of the FLSA, no tip credit may be claimed and the employee is entitled to receive the full cash minimum wage for all time worked.

Tip pooling: The requirement that an employee must retain all tips allows tip splitting or tip pooling arrangements only among employees who customarily and regularly receive tips such as waiters, waitresses, servers, bellhops, counter personnel (who serve customers), busboys/girls and service bartenders. Tipped employees may not be required to share their tips with non-tipped employees, for example with dishwashers, cooks, expediters, chefs and janitors. Where non-tipped employees participate or are included in the tip pool, the employer loses or forfeits the tip credit and the employee is entitled to receive the full cash minimum wage for all time worked.

Credit cards: Where tips are charged on a credit card and the employer must pay the credit card company a percentage on each sale, then the employer may pay the employee the tip, less that percentage. This charge on the tip may not reduce the employee’s wage below the required minimum wage and may not exceed the amount actually charged by the credit card company. The amount due the employee must be paid no later than the regular pay day and may not be held while the employer is awaiting reimbursement from the credit card company.

Service charges: A compulsory service charge, for example, 15 percent of the bill, is not a tip. Such charges are part of the employer’s gross receipts. Where service charges are imposed and the employee receives no tips, the employer may be required to pay the entire minimum wage and overtime required by the FLSA.

Meeting, set-up, or clean-up time: Many companies require tipped employees to come to work early or stay late for meetings or to perform opening and closing job duties. Even though these workers cannot make any tips during this time, these hours are paid at the tip credit rate. This may be illegal and employees are entitled to be paid the full minimum wage for such work time.

Prerequisites to Taking the Tip Credit

If an employer elects to use the tip credit provision the employer must:

  1. Inform each tipped employee about the tip credit allowance (including amount to be credited) before the credit is utilized;
  2. Be able to show that the employee receives at least the minimum wage when direct wages and the tip credit allowance are combined;
  3. Allow the tipped employee to retain all tips, whether or not the employer elects to take a tip credit for tips received, except to the extent the employee participates in a valid tip pooling arrangement.

If an employee’s tips combined with the employer’s direct wages of at least $2.13 an hour do not equal the minimum hourly wage — $7.25 an hour effective 7/24/09 — the employer must make up the difference.

*** Important Note*** Many state laws have tip credit laws that are stricter than the federal FLSA. For example, the State of Illinois requires employers to pay 60% of the applicable Illinois minimum wage of $8.25 per hour.  Effective July 1, 2010, the tip credit rate in Illinois is at least $4.95 per hour.

Typical Problems

Minimum Wage Problems: Employee does not qualify as a “tipped employee”, tips are not sufficient to make up difference between employer’s direct wage obligation and the minimum wage; employee receives tips only — so the full minimum wage is owed; illegal deductions for walk-outs, breakages and cash register shortages; and invalid tip pools.

Overtime Pay Problems: Failure to pay overtime on the full minimum wage; failure to pay overtime on the regular rate including all service charges, commissions, bonuses and other remuneration. Employers frequently calculate the overtime rate of pay for tipped employees at an incorrect rate.

Set forth below is a common error made in calculating overtime pay.

Servers at a restaurant worked more than 40 hours per week. This restaurant follows federal wage law and pays its tipped servers a cash wage of $2.13 per hour, taking the maximum “tip credit” of $5.12 per hour allowed under federal law.

During a single work week, one server worked 60 hours. In addition to the tips paid directly to him by guests, the server received a total of $149.20 in compensation from the restaurant.

The restaurant computed his wages as follows: 40 hours x $2.13 per hour = $85.20; 20 overtime hours x $3.20 per hour ($2.13 x 1.5) = $64; $85.20 + $64 = $149.20. The server objected and claimed that his compensation was not properly computed. For the reasons set forth below, the server is correct and was unlawfully not paid all the compensation that he was owed.

Employers of tipped employees must pay a cash wage of at least $2.13 per hour if they claim a tip credit against minimum-wage obligations. However, while a restaurant operator can pay $2.13 an hour for the server’s first 40 hours worked per week, overtime cannot be calculated at one-and-a-half times $2.13.

In calculating the overtime rate for the tipped employee, the restaurateur must multiply the minimum wage ($7.25 per hour) by 1½ (1.5), subtract the tip credit ($5.12 per hour), multiply that figure by the number of overtime hours worked (20 hours), and then add that sum to his 40-hour total ($85.20). [$7.25 x 1.5 = $10.88; $10.88 - $5.12 = $5.76; $5.76 x 20 = $115.20; $115.20 + $85.20 = $200.40] Therefore, the restaurant should have paid the server $200.40 instead of $149.20.

Illustration: The Correct Calculation

Employee’s regular rate of pay $7.25
Multiply by overtime rate x 1.5
= $10.88
Subtract the federal tip credit - $5.12
Equals overtime rate = $5.76
Multiply by the number of overtime hours worked (20 hours) x 20
Total overtime pay = $115.20
Employee’s pay for first 40 (straight-time) hours:
40 hours x $2.13 per hour
+ $85.20
Employee’s total weekly pay = $200.40

Tipped employees in Chicago and across the United States have often found that they are not being paid the minimum wages or overtime pay they deserve. When this happens, you should find and contact the best lawyer possible who is experienced in pay problems for servers, waiters and other tipped employees.

Werman Salas P.C., has handled hundreds of cases for workers who believe that they have suffered employer abuse in the restaurant and food industry. We are among the most experienced law firms representing waiters, servers and other tipped employees in the restaurant and service industries. You can trust Werman Salas P.C. to aggressively fight to recover the wages, tips or other money you are owed by your employer. Prospective clients can schedule an appointment by calling 877-419-1008 or by completing our contact form.