Category : Minimum Wage

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Understanding the Tip Credit – Part 2 of 3

The Tip Credit is a popular method of payment used by restaurants, bars, and other businesses. However, a surprisingly large percentage of business owners do not fully understand how to properly apply the Tip Credit in terms of overtime, minimum wage and participation. In this three part series, we will break down each of these components for the proper use of the Tip Credit.

Today we address minimum wage.  In short, any employee in Florida receiving wages subject to the Tip Credit must be paid no less than $5.08 per hour directly from the employer. This rule applies no matter how much the employee receives in tips.

Let’s look at two scenarios:

Scenario A – The employer pays $200 for a 40 hour work week and the employee additionally averages $750/week in tips.

Scenario B – The employer pays $300 for a 40 hour work week and the employee additionally averages $200/week in tips.

In both scenarios, the employee earns well in excess of the Florida minimum wage. Also, the employee in Scenario A earns far more than in Scenario B. However, the employer in Scenario A fails to meet the minimum wage threshold.

The critical issue is that the employer’s contribution must be equivalent to the minimum wage times the number of hours worked. The amount of tips earned by the employee doesn’t matter so long as the employee’s total pay exceeds minimum wage (in Florida, that would be $324/week at the present minimum wage rate of $8.10/hour for a 40 hour week).  Thus, Scenario A fails because the employer is paying only $5.00/hour and not the required $5.08/hour.

Proposed Changes to FLSA Exemptions…Are You Ready?

In July 2015, the Department of Labor (“DOL”) proposed significant changes to the Executive, Administrative, Professional (“EAP”) or “white-collar” exemption under the Fair Labor Standards Act (“FLSA”). The FLSA makes it illegal for an employer to pay under the minimum wage and forces employers to pay overtime to those employees who are (properly) classified as “non-exempt.” The modifications, if they are approved, will increase the salary threshold for those white-collar workers who may now be exempt from overtime laws.

….So, what does this mean for employers??

First, it is important for employers to understand the changes proposed, should they go into effect. Here is an example of how the new rules may affect you, a business owner: Company, Inc. (which is an “employer” within the guidelines of the FLSA) employs an office manager named Robert. Under the current rules, such a position may be exempt under the Administrative exemption (you can read more about that here). In order to be exempt, Robert would have to earn at least $455/week, perform primarily non-manual labor which is directly related to the operations of the employer, and have independent discretion with regard to significant matters. Well, let’s say that Company, Inc. has an employment law attorney on retainer and knows that Robert is properly exempt from overtime. So, Robert works about 60 hours a week and gets paid $500/week, regardless of the hours he works.

If the proposed changes are made, the required salary Robert would have to make could be as high as $970/week. This is a massive increase to Robert’s pay. This is also a massive increase to Company, Inc.’s payroll expenditures. So, if Company, Inc. wishes to avoid paying Robert overtime, they will need to increase his salary from $26,000/year to $50,440.

It is important for employers to understand the “why” as well: the DOL pointed out that the current threshold of $455/week is actually below the poverty line for a family of four. What’s more, the last time any modifications to this part of the FLSA were made was more than 10 years ago, in 2004. Since then, there have been several increases to the minimum wage, yet no changes to this salary threshold. So, it makes sense.

However, if you are a business owner who has questions about whether or not you have to change the classification of some of your employees, need to change the the way some of your employees are paid, or may have to start using a time-keeping system given this new proposed rule, please contact a knowledgeable and qualified employment law attorney within your state.

Did you Know? Florida’s Minimum Wage to Increase in 2015

Hopefully the first post in a new series, “Did you Know?” which will serve to inform employers and employees about new (or maybe just lesser known) facts about work.

For all our friends in the Sunshine State, the minimum wage will be raised to $8.05 beginning January 1, 2015 and the minimum wage for tipped employees will rise to $5.03. This increase is due to the Florida Minimum Wage Act which authorizes the DEO (Department of Economic Opportunity) to annually adjust the minimum wage based on a variety of factors.

Employers: make sure you visit the DEO and get the latest minimum wage posters which must be displayed for your employees.

Employees: make sure that your new hourly rate is equal to or above $8.05, or $5.03 if you are a tipped employee, beginning January 1, 2015.

If you are in Florida and need assistance or advice regarding minimum wage and/or overtime, contact us!

Disclaimer: Nothing contained in this post is meant to be construed as legal advice. If you require legal advice, contact a qualified attorney in your state. Nothing contained herein is meant to create the attorney-client relationship, and any comments, posts, or replies are not confidential and are not legal advice.