Typical Minimum Wage & Overtime Pay Problems

Typical Minimum Wage & Overtime Pay ProblemsMinimum Wage Problems: Employee does not qualify as a “tipped employee”, tips are not sufficient to make up the 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.

Common Overtime Pay Calculation Error

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