Overtime Pay: How to Calculate for Tipped Employees

Last updated on: March 26, 2015

Overtime Pay: How to Calculate for Tipped Employees

The Fair Labor Standards Act (the FLSA) requires employers to pay extra wages to employees who work more than 40 hours/week. In many cases, calculating the amount of overtime due is a straightforward matter. In the case of tipped employees, however, it gets more complicated because:

  • the minimum wage for tipped employees is lower than the general minimum wage, and
  • the employer must make up any difference between the tipped employee’s actual income and the general minimum wage, and
  • the hourly income of a tipped employee is variable.

How to Calculate Minimum Wage for a Tipped Employee 

According to the FLSA, a tipped employee is an employee who regularly receives over $30 per month in tips. Both federal and Texas state law set the minimum wage for tipped employees at $2.13 per hour (under Texas law, a tipped employee is defined as an employee who usually receives more than $20 a month in tips). The general minimum wage under both federal and Texas law is $7.25 per hour (as of 2015). If your tips aren’t enough to make up the difference between $2.13 and $7.25, your employer must make up the difference. In other words, a tipped employee making $2.13 an hour is entitled to an additional tip credit of $7.25 – $2.13 = $5.12/hour, offset by the actual amount of tips he or she receives.

Basic Overtime Calculation Method

The overtime pay calculation method for tipped employees is a variation of the overtime pay calculation method that applies to non-tipped employees paid by the hour. The basic formula for calculating overtime for a non-tipped employee paid by the hour is (regular hourly wage x 1.5) x (number of hours of overtime worked).

For example, if the employee makes $10.00/hour and he or she works 47 hours in a particular week, he or she has 7 overtime hours and his overtime pay is ($10.00/hour x 1.5) x 7 hours overtime = $105. Remember that this amount includes a regular hourly wage for these 7 hours of $70; only $35 of it represents extra pay for overtime.

How to Calculate Overtime for Tipped Employees 

If the tipped employee is paid the $2.13 minimum wage for tipped employees, calculating overtime pay works like this:

  1. 1. Calculate general hourly overtime pay rate based on the general minimum wage (not the minimum wage for tipped employees). This amount equals $7.25 x 1.5 = $10.88/hour.
  2. 2. Subtract the employee’s hourly tip credit from the general hourly overtime pay rate: $10.88/hour general overtime pay rate – $5.12/hour tip credit = $5.76/hour tipped employee overtime pay rate, assuming that his non-overtime pay rate is $2.13/hour.
  3. 3. Determine the number of hours of overtime worked. If the employee worked 50 hours in a particular week, this amount equals 50 – 40 = 10 hours overtime.
  4. 4. Multiply the number of hours of overtime by the employee’s hourly overtime pay: 10 hours overtime x $5.76/hour overtime pay = $57.60.
  5. 5. Remember that the employee’s tip credit of $5.13/hour is still due to the extent that it is not offset by the employee’s tips received during overtime work.


Call Zinda Law Group Now to Receive the Help You Need

If you are involved in an overtime pay dispute, or if you simply want to know more about your rights and obligations, it is important that you retain the right lawyer. Zinda Law Group has secured Better Business Bureau® approval and offers attorneys with years of experience in employment law. We stand ready to advise you of your legal rights and, if necessary, fight for them. We are headquartered in Austin area and have 22 offices nationwide. We can be reached by telephone at 800-863-5312 for a free initial consultation so call today.