Given the variety of payment methods restaurant workers may receive, restaurant payroll can be complicated. There are many ways that minimum wage regulations, overtime rules, and tip credit can affect workers based on method of payment:
Minimum Wages Regulations and Tip Credit
While the federal minimum wage has remained consistent since 2009, many states and municipalities have elected to adopt a higher minimum wage rate. Employers covered by multiple minimum wage requirements must follow the stricter standard; the one that is the most beneficial to the employee.
- For tipped employees: The Fair Labor Standards Act (FLSA) defines tipped employees as any worker who regularly receives more than $30 per month in tips above their base pay. Once providing required notices to employees, the FLSA allows employers to pay a minimum cash wage for tipped employees of $2.13/hour. The difference between minimum wage and the cash wage is the tip credit. Currently the maximum tip credit is $5.12. If an employee’s tips combined with the cash wage do not equal the minimum hourly wage, the employer must make up the difference. Some jurisdictions require a higher minimum cash wage. Other jurisdictions (including California, Minnesota, and Washington) do not allow tip credit; the employer is required to pay employees the full hourly minimum wage set by the jurisdiction before any tips are earned.
- For non-tipped salaried employees: Regardless of the method of payment, non-exempt employees must be paid at least minimum wage. Employers should verify that salary for non-exempt employees who are not tipped is at least $7.25 for the first 40 hours in a workweek.
- For non-tipped hourly employees: The federal minimum wage for hourly employees is $7.25 per hour. However, restaurant owners must be cognizant of the minimum wage requirements for all states and localities in which they operate. Any instance in which the federal, state, or local minimum wage amounts differ, non-exempt employees must be paid the higher of the local, state or federal minimum rate.
To manage payroll efficiently, employers should be aware of how overtime rules impact restaurant employees. In most situations, employees must be paid one-and-a-half times their regular rate or pay for "overtime" hours, any hours worked over 40 in a work week.
- For tipped employees: Overtime is calculated on the full minimum wage, not the lower direct (or cash) wage payment. The employer may still take a tip credit on overtime hours. Generally, the employer may not take a larger tip credit for an overtime hour than for a straight time hour. For example, the tip credit for a tipped employee in the state of Tennessee (where there are no state-specific minimums) is $5.12, calculated as $7.25 minus $2.13. If a tipped employee in the state of Tennessee works overtime, the minimum cash rate for the overtime hours is $5.76, calculated as $10.88 ($7.25 x 1.5) minus $5.12 (tip credit).
- For salaried employees: Overtime payment for a non-exempt salaried employee will be dependent on how the salary is defined and what hours are included in the payment. Generally, to determine the regular rate of pay for a non-exempt salaried employee you divide the total pay for employment in any workweek by the total number of hours worked.
- For non-tipped hourly employees: If an hourly employee works more than 40 hours in a single week, any hours over 40 are paid at one-and-a-half times the employee's regular rate of pay.
As mentioned above, the FLSA defines tipped employees as those who routinely make more than $30 per month in tips above their regular wages. However, it is possible for any employees to receive tips occasionally as well.
- For tipped employees: Restaurant employees such as waiters or bartenders routinely receive more than $30 per month in tips, classifying them as tipped employees who can then be paid a lower hourly rate. With that classification, it is important for tipped employees to honestly and fairly report all tips received. The employee is responsible for tracking tips and reporting them to the employer, who in turn is responsible for reporting and paying FICA and state income taxes on behalf of the employee. To prove that all tipped employees receive at least the standard minimum wage, employers are responsible for tracking and reporting detailed documentation on all tipped employees.
- For hourly employees: If an hourly employee regularly receives a cut of a tip pool or tip-splitting arrangement, she is responsible for reporting tips to the employer, even if she receives a normal hourly wage at or above minimum wage. The employer is then responsible for tracking and reporting the tips as with other tipped employees. If an hourly employee receives only an occasional tip that does not routinely meet the $30 monthly threshold, then no reporting is required.
Payroll considerations for restaurant employees can be even more complicated than payroll requirements for other businesses. By understanding the different requirements for the various employee types, employers can make sure to follow all rules and regulations that may apply, helping mitigate the risk of incurring fees or fines.