Are you Accurately Calculating Overtime for Tipped Employees?February 24, 2017
Do you know how to properly calculate overtime pay for your tipped employees? You could be hit with penalties from the DOL if you incorrectly pay them.
Are you paying your tipped employees correctly? Calculating overtime pay and tips into hourly wages can get complicated, but we’re here to help.
First things first, what is the minimum wage? As of January 1, 2017:
RI Minimum Wage: $9.60 / hour
Tipped Employees: $3.89 / hour (the rate was $3.39 for 2016 and $2.89 prior to January 1, 2016)
Tip Credit: $5.71 (difference between minimum wage $9.60 and tip wage $3.89)
Generally, Federal and State Laws require payment of one and one half (1 ½) the regular wage rate for any hours worked in excess of 40 per work week.
So, the tipped employee overtime rate = tipped minimum wage rate * 1.5, right? WRONG!
The overtime rate for tipped employees is NOT 1.5 times the tipped wage rate. For RI this incorrect calculation would be $3.89 x 1.5 = $5.83.
What is the correct calculation?
Overtime Rate for Tipped Employees
To calculate the 2017 overtime rate for tipped employees, subtract the employee's regular tip credit from the regular overtime rate.
$9.60 x 1.5 = $14.40 / hour
minus tip credit - $5.71 / hour
Equals $8.69 / hour
If you are looking back at prior years to self-correct, the calculation is a bit different.
2015 Minimum wage $9.00 | Allowable Tip Credit 6.11 | Overtime Rate $7.39
2016 Minimum wage $9.60 | Allowable Tip Credit 6.21 | Overtime Rate $8.19
What’s at stake if you pay incorrectly?
The Department of Labor has been very active performing audits in the tri-state area recently. It is better to self-correct before they knock on your door and hit you with penalties and interest in addition to the payment of the lost wages and taxes.