EXAMPLE: using tips towards minimum wage and overtime

EXAMPLE: using tips towards minimum wage and overtime

Sally works for your Schedule 2 restaurant. She typically works 25 hours per week as a server, and 10 hours per week as an administrative assistant (admin), helping out with office paperwork (paying invoices, working with vendors, ordering cleaning supplies, etc.). In 2015, her pay rate as a server is $10.00 per hour plus tips and, as an admin, her pay rate is $13.00 per hour. Your pay period is biweekly. During the first week in one pay period in July 2015, Sally picked up a couple of extra server shifts, working 35 hours as a server that week. She also worked 10 hours as an admin that week – resulting in her working 45 hours that workweek. In the second workweek of that pay period, Sally worked her usual schedule of 25 hours as a server and 10 hours as an admin. In that workweek, she also attended a one-hour mandatory meeting for all servers, and spent 5 hours attending mandatory server training on a new service model – resulting in her working 41 hours that workweek. It is now time to run payroll.

ANALYSIS:       You first need to determine for which hours you can apply tips towards the difference between minimum wage and minimum compensation. You then need to apply the tips she earned to those hours, to determine whether the tips make up the difference so that, if the tips fall short, you can make up the difference with wages. Then you will be able to determine her appropriate hourly pay rate for each hour worked per workweek, which will then allow you to determine her “regular rate” of pay for calculating her overtime.

In workweek 1, you can apply the tips she earned towards the 35 hours she worked as a server. Assume you average the tips she earned for that workweek, and that this easily reaches the $1.00 per hour difference between the minimum wage and minimum compensation for each of those hours. Based on this, in applying the “weighted average” method of determining the appropriate overtime rate, her earnings for that workweek would be as follows:

  • 35 hours X $10.00 per hour = $350.00
  • 10 hours X $13.00 per hour = $130.00.
  • Her straight time pay, therefore, is $480 ($350 + $130).
  • Her regular rate of pay is $10.67 ($480.00 divided by 45 hours worked).
  • Her additional pay owed for overtime is $26.67 (1/2 of the regular rate times 5 overtime hours).
    • Because she already is credited with straight time pay for all 45 hours, her additional overtime owed is just ½ of the regular rate for each overtime hour.

In workweek 2, it is appropriate to apply the tips she earned that week towards (a) the 25 hours she worked as a server, (b) the one hour mandatory server meeting, and (c) the 5 hours of mandatory server training.[1] Again assume that you average the tips she earned for that workweek, and that this easily reaches the $1.00 per hour difference between the minimum wage and minimum compensation for each of those hours. You would then follow the same methodology outlined for workweek 1 in determining the amount she is owed for this workweek.

[1] The same logic of applying an employee’s tips towards time spent in mandatory meetings for tipped employees (allowed by the City per FAQ D(9)(d)) applies equally to time spent in mandatory training for tipped employees.

 

Categories: Government Affairs