Tuesday, March 28, 2023

A tip on tipped workers: pay them correctly or else

The Department of Labor has sued the owner of two restaurants claiming that servers were not properly paid overtime. 

El Toro Loco Legends LLC in Kansas City and El Toro Loco Lenexa LLC in Lenexa, Kansas, paid their tipped wait staff a minimum wage of $2.30 per hour, but did not properly calculate the overtime premium owed to those employees.

They calculated the overtime premium based off of the $2.30 tipped minimum wage instead of the greater of the full minimum wage of $7.25 per hour or the employee's effective weekly hourly rate including all tips received by the employee, less the employer's statutory tip credit against wages paid directly to the employee.

To calculate overtime pay for tipped employees you take the regularly calculated overtime rate and back out any statutory tip credit taken. Using the federal minimum wage as an example:
  1. Multiply federal minimum wage by one and one-half.
  2. Determine the employer's tip credit by subtracting the amount the employer is paying as a direct cash wage from the federal minimum wage of $7.25.
  3. Subtract the tip credit from step two from the overtime rate from step one to determine the employee’s overtime wage rate.

Thus, this is how El Toro Loco should have calculated overtime wages for its tipped employee receiving $2.30 per hour as a direct straight-time cash wage.
  1. $7.25 (regular rate of pay) * 1.5 (one and one-half overtime rate) = $10.88.
  2. $7.25 – $2.30 = $4.95 is the tip credit.
  3. $10.88 – $4.95 = $5.93, the correct overtime wage El Toro Loco should have paid.

Still confused? If you're attending the Craft Brewers Conference in May, you're in luck. On Tuesday, May 9, from 1p - 2p, I'm presenting Tips on Tips: How to Legally Account for and Pay Tipped Wages to Your Taproom & Brewpub Employees. I'll be sharing everything taprooms and brewpubs need to know about tip credits and tip pools to ensure, as best as possible, that you are paying your employees correctly and legally to keep your business away from expensive and distracting lawsuits. If you're at CBC, it's a session you really can't afford to miss. I hope to see you there.