The Tipping Point; How to Calculate Wages for Tipped Workers
Tipped Workers Receive a Lower Minimum Wage:
Tipped workers, including servers and bartenders, among others, are paid a minimum wage, plus what they earn in tips (the “minimum tipped wage”). The minimum tipped wage is typically lower than the minimum wage paid to non-tipped workers.
Employers May Further Reduce This Wage Utilizing a Tip Credit:
In addition to a lower minimum tipped wage, employers can take a “tip credit” toward the tipped employee’s hourly wage. For example, as of December 31, 2015, the minimum wage for a tipped employee in the hospitality industry was $9.00. The Department of Labor allowed employers to take a tip credit of $1.50, meaning the employer was only responsible for paying the tipped employees $7.50 per hour, essentially lowering the minimum wage.
Employers May Only Utilize a Tip Credit if the Tipped Employee Earns a Threshold Amount of Money in Tips Each Week:
Failures to properly calculate the tipped employees’ wages can leave an employer vulnerable to an employee dispute. For example, for tipped workers in non-food service industries working at resort hotels, the employer can only take advantage of the tip credit if the employee’s tips average more than $5.05 per hour. Employers of tipped non-food service workers in all other hospitality establishments can only take advantage of the tip credit if the tipped workers earn more than $1.95 per hour in tips. In all industries other than hospitality and building service, the tip credit is limited to $2.20 when weekly tips average at least $2.20 per hour, are limited to $1.35 when weekly tips average at between $1.35 and $2.20 per hour, and are prohibited when weekly tips average less than $1.35 per hour. The Building Service Industry and Fast Food Industries have prohibited the tip credit entirely.
To calculate the total amount of tips received by an employee, the employer must add the total tips received by that employee during the work week, divided by the total working time of that employee, reduced by any amounts the employee paid to a tip pool, for tip sharing (for example, when servers share a portion of their tips with bussers at a restaurant) or for credit card charges.
Tipped Employees Who Work Overtime Are Still Subject to the Tip Credit:
When tipped employees work overtime, the employer must pay one and a half times the minimum wage rate before the tip credit, and then subtract the tip credit from that amount. The tip credit does not increase when tipped employees work overtime.
Tipped Employees Who Perform Dual Functions for Certain Periods of Time are Not Subject to the Tip Credit:
Further complicating issues, are employees who perform tipped and non-tipped occupations on the same day. Employers are prohibited from taking a tip credit when paying tipped employees who work at a non-tipped occupation for two hours or more or for more than 20 percent of his or her shift (whichever is less) on any day. This includes restaurant employees who have two different positions (for example, an employee who acts as a manager and as a bartender), and it also includes employees that perform non-tipped occupations, like a server who performs food preparation, or “side work” before or after his/her shift. If the server’s non-tipped occupations take up more than 20% of his/her shift, or last for two hours or more, the server is not subject to a tip credit for that day.
Employers May Take a Service Charge from Employees’ Tips Charged on Credit Cards:
When tips are charged on credit cards, the employer may return to the employee the full amount of the tip charged on the credit card, minus the pro-rated portion of the tip taken by the credit card company.