Paying Restaurant Employees in a Changing Payroll Landscape

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.
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