Calculating Overtime Pay for Restaurant Workers and Others

 In Employment Law, Overtime Law, Wage Law

Calculating Overtime Pay

The federal Department of Labor (“DOL”) recently issued a letter providing guidance for employers with respect to calculating overtime payments. Generally, federal law requires time-and-a-half for any hours worked beyond 40 hours in a seven-day workweek. But calculating what is owed for overtime pay can be complicated because an employee might have different pay rates for the hours worked and tips, service charges, automatic gratuities, and reimbursements might need to be included. Getting the calculations correct is important for employees, particularly for employees in the restaurant and hospitality industries, because workers have a right to full payment. If your employer is shorting you on your overtime pay, your employer is stealing your pay. Wage theft is illegal and employers can be punished and held liable for back wages and overtime pay.

The DOL guidance was issued in FLSA Opinion Letter 2021-5 (“Opinion Letter”). In the Opinion Letter, the DOL explained how to correctly calculate overtime for the following hypothetical involving a restaurant employee who worked 42 hours during a hypothetical work week where the employer had elected to use the tip credit. The hours, rates, tips, tip credits and service charges received were as follows:

  • 18 hours as a server at $2.13 an hour
  • $75 per shift as a bartender; three shifts and each shift was eight hours
  • For all hours, $732 in tips
  • For all hours, $160 in service charges

The general rule is that the total earnings by the worker are added up and then divided by the total number of hours worked. This establishes the “regular pay rate.” Then, overtime is calculated based on the “regular pay rate.”

For the hypothetical in the Opinion Letter, the DOL started with the 18 hours worked as a server. Because the worker had sufficient tips, the employer was able to fully take advantage of the tip credit. When a tip credit is being used by an employer, the pay-per-hour is based on the cash payment plus the amount of the tip credit up to $7.25 (the federal minimum wage rate). Thus, for those 18 hours, the calculation was

  • $2.13 (employer’s cash payment)
  • plus $5.12 (the tip credit)
  • for a total of $7.25 per hour

This was then multiplied by 18 for a total of $130.50 for those hours.

Concerning the bartending hours, the employee had three shifts of eight hours each for a total of 24 hours. Each shift was paid at a flat rate of $75 which added up to $225 earned for bartending.

The DOL then dealt with the remainder of the tips and the service charges received by the employee. The general rule is that, beyond what is needed to “fill up” the tip credit, tips are NOT included when calculating the regular pay rate. Thus, the remainder of the tips was excluded from the calculation. However, service charges and other mandatory gratuities that are paid to an employee ARE included when calculating the regular pay rate and overtime. Since the employee received them, the $160 in service charges were included.

Thus, the hypothetical worker was determined to have earned total wages of $515.50 ($130.50 + $225 + $160). This was then divided by 42 hours — the number of hours worked — resulting in a regular pay rate of $12.27 per hour. As such, the worker was entitled to be paid an extra $6.14 per hour of overtime worked.

One important implication from the DOL Opinion Letter is that, for tipped workers and those receiving service charges, the regular pay rate might be different every week, and consequently, the overtime rate might be different every week. If this is typical of your work situation, but if you are receiving the same overtime rate each week, your employer might be calculating your overtime pay incorrectly. If you believe this is happening to you, seek the advice and counsel of the Employee Rights attorneys at Herrmann Law.

Call the Employee Rights Attorneys at Herrmann Law Today

For more information, call the Employee Rights attorneys at Herrmann Law. If you think that your employer has violated your rights as an employee or your employer has engaged in wage theft, call us. We are proven, experienced, employee-focused attorneys representing workers across the United States in all types of workplace disputes. Use our Online Contact page or call us at (817) 479-9229.

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