of federal wage & overtime law
Rule 1: Base it on a single
Rule 2: Base it on the employee's regular
rate of pay
I give "comp time" instead of paying overtime?
of meals for overtime
The above information below is intended only to inform and not to
be a substitute for the reader's seeking legal counsel. Any information
given here should be examined by the reader's attorneys as to such
of federal wage law
Fair Labor Standards Act (FLSA) requires employers to pay workers
one-and-a-half times the employee's regular rate of pay for all hours
worked over 40 hours per week.
important to calculate overtime pay properly, particularly for your
employees who receive tips: Incorrect calculations could mean some
pretty hefty bills and fines if you ever go through a wage-and-hour
audit. Here's some help on how to calculate overtime for your tipped
1: Use a single workweek as the standard
Employers must use a single workweek as the standard when calculating
an employee's overtime pay. Generally, a workweek is defined as
a fixed and regularly recurring period of 168 hours-seven consecutive
24-hour periods. A workweek may begin on any day and at any hour
of that day.
may not average an employee's hours over two or more weeks. For
example, if an employee works 30 hours one week and 50 hours the
next, no overtime is due in that first week. However, overtime must
be paid for 10 hours in the second week, regardless of how often
the employee is paid (i.e., daily, weekly, biweekly, monthly).
FLSA does not generally require that an employee receive overtime
compensation for working more than eight hours per day, or working
on weekends or holidays unless 40 hours per week is exceeded. Some
states require overtime pay for exceeding daily maximum limits (e.g.,
eight hours) even if the total weekly hours the employee worked
was 40 hours or less. Contact your state restaurant
association for details.
defining your workweek, the next step is to determine an employee's
regular rate of pay.
2: Base it on the employee's regular rate of pay
Since overtime compensation is based on an employee's regular
rate of pay, restaurant operators must compute what exactly
is each worker's hourly pay. Regular rate of pay includes all remuneration
for employment, except certain payments like:
of expenses incurred on the employee's behalf, e.g., for uniform
bonuses where the exact amount and time bonus given is not discussed
of special gifts on certain occasions, e.g., turkeys at Thanksgiving
for those occasional periods when no work is performed because of
a vacation, holiday or illness.
tipped employees, restaurateurs should keep in mind that the law
requires that an employee's regular rate of pay can never be
less than the applicable minimum-wage rate. For example, an
employer pays his or her tipped employees the current federal
minimum wage of $5.15 per hour, which is broken down into a cash
wage of $2.13 per hour and a tip credit of $3.02 per hour. The
restaurant operator should calculate tipped employees' overtime
rate NOT by multiplying the cash wage of $2.13 by 1.5 but by multiplying
$5.15 (employee's regular rate of pay) by 1.5 and then subtracting
the hourly tip credit of $3.02.
a large convention came to town during a busy tourist season, servers
at a local restaurant worked more than 40 hours per week. This restaurant
follows federal wage law and pays its tipped servers a cash
wage of $2.13 per hour, taking the maximum "tip credit"
of $3.02 per hour allowed under federal law.
a particularly busy week, one server worked 60 hours. In addition
to the tips paid directly to him by guests, the server received a
total of $149.20 in compensation from the restaurant.
restaurant computed his wages as follows: 40 hours x $2.13 per hour
= $85.20; 20 overtime hours x $3.20 per hour ($2.13 x 1.5) = $64;
$85.20 + $64 = $149.20. The server complained that his pay was not
properly computed and he was correct. Here's why.
of tipped employees must pay a cash wage of at least $2.13 per hour
if they claim a tip credit against minimum-wage obligations. However,
while a restaurant operator can pay $2.13 an hour for the server's
first 40 hours worked per week, overtime cannot be calculated at one-and-a-half
the overtime rate for the tipped employee, the restaurateur must multiply
the minimum wage ($5.15 per hour) by 1 ½ (1.5), subtract the
tip credit ($3.02 per hour), multiply that figure by the number of
overtime hours worked (20 hours), and then add that sum to his 40-hour
total ($85.20). [$5.15 x 1.5 = $7.73; $7.73 - $3.02 = $4.71; $4.71
x 20 = $94.20; $94.20 + $85.20 = $179.40.] Therefore, the restaurant
should have paid the server $179.40 instead of $149.20.
The Correct Calculation
Employee's regular rate of pay
Multiply by overtime rate
the federal tip credit
by the number of overtime hours worked (20 hours)
Total overtime pay
Employee's pay for first 40 (straight-time) hours:
40 hours x $2.13 per hour
Employee's total weekly pay
I give comp time rather than pay overtime?
time and who is eligible for it are often sources of confusion. The
Fair Labor Standards Act says compensatory time is "time off
in lieu of overtime at a rate of not less than 1 ½ hours for
each hour of employment for which overtime compensation is required."
employers are not allowed to use comp time in lieu of overtime pay
for hours worked in excess of 40 hours per week for nonexempt employees.
the U.S. Department of Labor says that a private-sector employer may
allow the use of "time-off" plans for nonexempt employees,
which is similar to comp time with the leave taken during the same
pay period. For example, a nonexempt employee who works 50 hours during
the first week of a two-week pay period can take 15 hours off (or
be ordered to do so) in the second week, working only 25 hours without
any requirement that the employer pay overtime.
of meals for overtime
employer provides meals to employees and does not qualify for a meal
credit, the employer must include the value of those meals as part
of an employee's total remuneration when calculating the employee's
regular rate of pay.
DOL regulations do permit an employer to enter into an agreement with
any or all of his employees to exclude the cost of a "free daily
lunch or other single daily meal furnished to employees" when
computing overtime rates. For the meal to be excluded from overtime
rates in those instances, the meal must be provided at no cost to
the employees, the employer may not take a meal credit, and both the
employer and employee must agree to this arrangement before the meals
government: The DOL's Web site at www.dol.gov
offers Employment Laws Assistance
for Workers and Small Businesses (elaws), a service that helps
employers and employees understand and comply with the numerous
employment laws enforced by the DOL. Check out the elaws section
on Fair Labor Standards
Act questions. The DOL's
Wage and Hour Division also has information on wage issues.
laws: Join your state restaurant association
for the most up-to-date information on state wage rates, since many
states set a minimum wage that is different from the federal rate.
Last updated June 4, 2001.