The restaurant industry is notorious for low wages and reliance on tips to supplement server income. With rising minimum wages across the U.S., restaurant owners and employees alike may wonder how minimum wage laws apply to servers and other tipped employees.
If you’re short on time, here’s a quick answer to your question: Restaurants typically pay servers a lower minimum ‘tip credit wage’ and rely on tips to bring servers up to the full minimum wage. However, if tips plus the tip credit wage don’t add up to full minimum wage, restaurants are required to cover the difference.
In this comprehensive guide, we’ll dig into the nuances of restaurant minimum wage laws, including federal, state, and local policies. We’ll outline who has to be paid minimum wage, tipping laws and tip credits, overtime and deductions rules, and what recourse employees have if they aren’t properly compensated.
Federal Minimum Wage Laws for Restaurants and Tipped Employees
The Federal Minimum Wage
Under federal law, all employers, including restaurants, are required to pay their employees at least the federal minimum wage. As of July 2021, the federal minimum wage is $7.25 per hour. This means that restaurants must pay their non-tipped employees, such as kitchen staff and hosts, at least $7.25 per hour.
It’s important to note that some states have their own minimum wage laws, which may be higher than the federal minimum wage. In these cases, restaurants must pay their employees the higher state minimum wage.
Tipped Employees and Tip Credits
When it comes to tipped employees, such as waitstaff and bartenders, federal law allows restaurants to take a tip credit towards their minimum wage obligations. This means that instead of paying the full federal minimum wage, restaurants can pay a lower cash wage to tipped employees, as long as the employees earn enough in tips to make up the difference.
Currently, the federal tip credit allows restaurants to pay tipped employees a cash wage of $2.13 per hour, as long as the total amount they earn in tips brings their hourly wage up to at least $7.25.
If an employee’s tips do not bring their earnings up to the federal minimum wage, the restaurant is required to make up the difference.
It’s worth noting that some states have their own rules regarding tip credits and cash wages for tipped employees. In these cases, restaurants must follow the higher of the federal or state requirements.
Restaurants, like any other employer, are also subject to federal overtime pay requirements. Under federal law, non-exempt employees, including those working in restaurants, must be paid overtime at a rate of one and a half times their regular hourly wage for any hours worked over 40 in a workweek.
For example, if a restaurant employee is typically paid $10 per hour, they would be entitled to $15 per hour for any hours worked over 40 in a given week.
Deductions from Pay
Restaurants are allowed to make certain deductions from employees’ paychecks, but there are limits to what can be deducted under federal law. For example, restaurants can deduct taxes, Social Security, and Medicare contributions from employees’ paychecks.
However, they generally cannot make deductions for things like breakages, cash register shortages, or customer walkouts.
It’s important for restaurant owners and managers to familiarize themselves with the specific deductions that are allowed and prohibited under federal law to ensure compliance.
State and Local Minimum Wage Laws
When it comes to paying employees in the restaurant industry, one of the most common questions is whether restaurants have to pay minimum wage. The answer to this question is not a simple yes or no, as it varies depending on the state and local laws.
Higher Base Minimum Wages
Many states have set their own minimum wage rates, which are higher than the federal minimum wage. For example, in California, the minimum wage is currently $13 per hour for businesses with 26 or more employees and $12 per hour for businesses with 25 or fewer employees.
This means that restaurants in California must pay their employees at least this amount, regardless of whether they receive tips or not.
It’s important for restaurant owners and managers to stay updated on the minimum wage rates in their state. This can be done by visiting the official website of the state labor department or contacting the local labor office for accurate and up-to-date information.
Different Tip Credit Rules
Another factor that affects the minimum wage in the restaurant industry is the tip credit. The tip credit allows employers to pay their tipped employees a lower hourly wage, as long as the employees receive enough tips to make up the difference.
However, the rules regarding the tip credit vary from state to state. Some states allow a higher tip credit, while others have stricter rules or do not allow the tip credit at all. For example, in New York, the tip credit is $5 per hour, while in Alaska, it is $1.50 per hour.
It’s crucial for restaurant owners to understand the specific tip credit rules in their state to ensure compliance with the law.
City and County Minimum Wage Ordinances
In addition to state minimum wage laws, some cities and counties have their own minimum wage ordinances. These ordinances may set a higher minimum wage rate than the state or federal level, in an effort to address the cost of living in a specific area.
For instance, in Seattle, Washington, the minimum wage is currently $16.69 per hour for large employers and $15.00 per hour for small employers. These higher rates are a result of the city’s minimum wage ordinance, which aims to provide a living wage for workers in the area.
Restaurant owners need to be aware of any local minimum wage ordinances that apply to their business. This information can usually be found on the official website of the city or county government.
Who Must Be Paid Minimum Wage in Restaurants?
When it comes to minimum wage in the restaurant industry, it is essential to understand which employees are entitled to this protection. The Fair Labor Standards Act (FLSA) sets the guidelines for minimum wage requirements, ensuring that workers are fairly compensated for their time and effort.
Servers and Front-of-House Staff
One category of restaurant employees that must be paid at least the minimum wage is servers and front-of-house staff. These individuals rely heavily on tips as a significant portion of their income, which is why they are often paid a lower base wage known as the tipped minimum wage.
However, if the combined total of their tips and base wage does not meet the regular minimum wage, the employer is required to make up the difference.
Cooks and Back-of-House Employees
Cooks and other back-of-house employees, including dishwashers and kitchen staff, are also entitled to the minimum wage. These individuals play a crucial role in the smooth operation of a restaurant and deserve fair compensation for their hard work.
While their positions may not directly involve receiving tips, they still must receive at least the minimum wage as mandated by the FLSA.
Managers and Supervisors
Restaurant managers and supervisors are typically exempt from receiving overtime pay, but they are not exempt from minimum wage requirements. In other words, these employees must be paid at least the minimum wage for every hour worked.
It is important for employers to ensure compliance with these regulations to avoid legal issues and maintain a fair working environment.
Owners and Salaried Employees
Restaurant owners and salaried employees are also subject to minimum wage laws. While salaried employees may receive a fixed salary regardless of the number of hours worked, their salary must still meet or exceed the minimum wage requirement.
This ensures that even those in higher positions within the restaurant industry are compensated fairly.
Tracking Hours, Tips, and Ensuring Compliance
When it comes to paying employees, restaurants must adhere to minimum wage laws to ensure fair compensation. Tracking hours, tips, and ensuring compliance with labor regulations are crucial aspects of managing a restaurant’s payroll.
Failure to do so can result in legal penalties and reputational damage. Let’s explore some key areas that restaurants need to focus on to stay compliant.
Tip Pooling and Tip Sharing
Tip pooling refers to the practice of combining employees’ tips and distributing them among a group of workers. This is a common practice in many restaurants, especially those with a waitstaff. However, it is important to note that tip pooling must be done in accordance with labor laws.
In some jurisdictions, only certain employees who regularly receive tips are eligible to participate in tip pooling, while others, like managers or kitchen staff, are excluded. Restaurant owners and managers should familiarize themselves with the specific regulations in their area to ensure compliance.
Tip sharing, on the other hand, involves sharing a portion of tips with employees who do not directly receive tips from customers. This may include hosts, bussers, or other support staff. Again, it is crucial to understand the legal requirements regarding tip sharing to avoid any violations.
Timekeeping and Recordkeeping
Accurate timekeeping and recordkeeping are essential for restaurants to track the hours worked by their employees. This includes not only regular working hours but also overtime and breaks. Restaurants should implement a reliable timekeeping system that accurately records employees’ work hours.
This can be done through manual time cards, electronic time clocks, or digital systems.
Additionally, restaurants must maintain proper records of employee wages, tips, and other relevant information. These records serve as evidence of compliance with labor laws and may be required in case of audits or legal disputes.
Keeping thorough and organized records is not only a legal requirement but also beneficial for the restaurant’s own financial management.
Penalties for Violations
Failure to comply with minimum wage laws, tip pooling regulations, or timekeeping requirements can result in severe penalties for restaurants. These penalties may include fines, back wages owed to employees, and even legal action.
In some cases, restaurants may also face negative publicity and damage to their reputation, which can significantly impact their business.
It is crucial for restaurant owners and managers to be proactive in understanding and implementing the necessary measures to ensure compliance with labor regulations. Staying informed about the specific laws and regulations in their jurisdiction, implementing proper timekeeping systems, and maintaining accurate records are key steps in avoiding violations and protecting both employees and the restaurant’s reputation.
What To Do if You Aren’t Getting Paid Minimum Wage
Being paid less than the minimum wage is not only unfair but also illegal. If you find yourself in this situation, it’s important to take action to ensure that your rights are protected. Here are some steps you can take:
Talk to Your Employer
The first step is to have a conversation with your employer about the issue. It’s possible that there has been a mistake or misunderstanding, and bringing it to their attention may lead to a resolution. Be prepared to provide evidence such as pay stubs or work schedules to support your claim.
File a Wage Claim
If talking to your employer doesn’t resolve the issue, you can file a wage claim with the appropriate government agency. In the United States, for example, the Department of Labor has a Wage and Hour Division that handles wage-related complaints.
Make sure to gather all the necessary information and documentation to support your claim.
Report Violations Anonymously
In some cases, you may feel uncomfortable confronting your employer directly or fear retaliation. In such situations, you can anonymously report the violations to the relevant authorities. This can be done through hotlines or online portals provided by government agencies.
Remember to provide as much detail as possible to assist with the investigation.
Collect Evidence and Witnesses
When dealing with wage disputes, it’s crucial to gather as much evidence as possible to support your case. Keep records of your work hours, pay stubs, and any communication related to your wages. Additionally, if you have coworkers who are also being underpaid, encourage them to come forward and provide witness statements.
Strength in numbers can make a significant impact.
Consult a Lawyer for Legal Action
If all else fails, it may be necessary to consult with an employment lawyer who specializes in wage and hour laws. They can guide you through the legal process and help you determine the best course of action.
Keep in mind that legal action should be considered a last resort, as it can be time-consuming and costly.
Remember, everyone deserves to be paid the minimum wage as mandated by law. By taking the appropriate steps, you can protect your rights and ensure fair compensation for your work.
The complex web of federal, state, and local laws regarding minimum wages and tip credits in the restaurant industry can make it difficult for owners and employees to understand their rights and responsibilities.
While restaurants can pay tipped staff below the standard minimum wage, ensuring servers make at least full minimum wage between their lower tipped wage and reported tips is crucial for compliance.
Both employers and employees should educate themselves on prevailing wages, tipping and tip pool policies, and overtime and deduction rules. Careful recordkeeping and transparent communication can go a long way toward avoiding wage disputes.
Employees who aren’t properly paid the legal minimum wage should first attempt to resolve issues directly with management – but shouldn’t be afraid to file official complaints or lawsuits if needed.