3 to 4 million Americans rely on earning tips in their jobs. Most of these workers are in the service industry. Typical places of employment are bars, clubs, restaurants, hotels and private transportation (taxis and rideshare schemes). These tipped employees earn a range of income depending on just how lucrative it is to work in a particular place.
Tips are often very inconsistent and make it hard for these workers to know just how much they are going to earn in a particular working week. The definition of a “tipped worker” is provided by the federal government in the Fair Labor Standards Act (FLSA) which defines it as any worker who earns at least $30 a month. Different states have their own definitions with some like Texas that has a lower cut off and others the same as the federal standard.
Employers are not allowed to take any tips earned by employees, but they are bound to make up the difference if tipped workers earn less in tips than the operative minimum wage. The rules are quite complicated as they are a combination of state and federal laws and are different from those that apply to normal waged workers.
If you are a tipped worker and think that you are being underpaid, you should talk to an employment lawyer to establish whether you are being paid correctly and if you are not what you can do about it.
Tipped Workers
The FLSA mandates that any tipped worker (i.e. any worker who earns at least $30 per month in tips) must be paid a minimum wage of at least $2.13 an hour as long as the amount of tips earned brings up the total earnings to at least the normal federal hourly minimum of $7.25 an hour.
To give an example, say a waiter at a restaurant earns $100 in tips over a 25 hour working week. This amounts to an average of $4 an hour in tips. If the federal minimum is applied, this would be insufficient pay as $2.13 (the federal minimum for tipped workers) + 4 = $6.13, which is $1.12 less than less than the mandated normal federal minimum. This means that the employer must pay the difference, i.e. a total of $3.25 an hour.
Tipped workers pay is not as easy as these calculations imply because complications arise when:
- You work in a state where the amount of tips earned or the state minimum for tipped workers is different from the federal rules;
- If you work for more than 40 hours a week (or a state equivalent) which is the criterion for paying overtime.
For state minimum pay for tipped workers, many states have a higher minimum than the federal amount. In all cases, the higher of the two is taken as the legal minimum tipped workers hourly rate. The same rule applies that the state minimum even if it is more than $2.13 an hour, must be supplemented if a calculation shows that the tipped worker still doesn’t earn as much as the normal minimum wage. Again this ‘normal minimum wage’ is determined to be the higher of the state or federal minimum wages.
To take an example, the tipped workers’ minimum hourly rate in Arizona in 2020 was $9 an hour. The normal minimum wage is $12 an hour. So, if a tipped worker in Arizona earns less than $3 an hour on average in tips, the employer must supplement the wage to at least match the state minimum. If the tipped worker earns $5 an hour in tips on average, then the employer must still pay the state minimum for tipped workers of $9 an hour, meaning that the worker would then earn $14 an hour altogether.
The rules for overtime are more complicated still, especially in terms of the actual math that has to be made. However, the rule that any worker who works more than 40hours in any 7day period must be paid overtime on any hourly wage at a rate of one and a half times that rate.
This overtime rate applies to the employer’s contribution to the tipped worker’s pay, but the calculation is complicated by what is called the tip credit, which is the difference between the tipped worker’s minimum and the normal minimum hourly pay.
Get Help Today
Because of the difficulties in calculating tipped workers’ pay and deliberate underpayment by some employers, it is common for tipped workers to experience wage theft. You should contact an employment lawyer to help you decide if you are being underpaid. There are legitimate legal avenues that you can use to help get paid correctly with a lawyer’s help.
Fill out a free evaluation form today.
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