Jairo Castellanos
Austin Employment Lawyer Jairo Castellanos

Summary: 

 While many individuals are familiar with how overtime calculations work, this calculation is often times made more difficult in the case of tipped employees. In this blog, I am to shed some light in some of the most often seen errors that are seen by both employers and employees in calculating overtime rates. 

Most, if not all, people are aware of the requirement imposed by the Fair Labor Standards Act (“FLSA”) that all covered employers must pay their employees a minimum wage of $7.25 for every hour worked. Moreover, most people are familiar with the fact that if you are a tipped employee an employer is able to take what is often referred to as a “tip credit” whereby an employer is allowed to pay an employee as little as $2.13 an hour. This is of course with the assumption that the employee in question is still making at least $7.25 an hour after the total sum of tips they receive are taken into account. 

 The inquiry with tipped employees does become murkier with regards to what is the proper overtime rate. Under the FLSA overtime is paid at a rate of time and a half of an employee’s regular rate, but with tipped employees this calculation often leads to various errors. For example, some employers attempt to calculate their tipped employee’s overtime pay based on their tip credit rate of $2.13 an hour. In other words, some employers claim that a tipped employee’s overtime rate is only $3.20 an hour. This is incorrect. On the other hand, some individuals believe that the true regular rate at which overtime is calculated is whatever their hourly rate with tips included is correct. This means that if on average an employee makes $10 an hour after tips, their overtime rate should be $15 an hour. This is also incorrect.

 The Department of Labor (“DOL”) has issued regulations that the actual regular rate at which a tipped employee’s overtime pay is calculated is actually $7.25. Indeed, under 29 C.F.R. §531.60, any tips received by an employee in excess of the tip credit need not be included in the calculation of the regular rate for overtime purposes. U.S. Department of Labor, Wage and Hour Division Opinion Letter FLSA2021-5. This means that no matter how many tips an employee receives, the overtime rate owed to them by the employer for hours worked over 40 is still only $10.88. This of course applies only to payments that are considered tips under the FLSA.

 A major, and often overlooked, payment that is not considered a tip are services charges. Service charges are defined as compulsory charges that are paid to the employer and not the employee. Nonetheless, often times the employer provides these payments to its employees. When that occurs the DOL has stated that this amount must be used in calculating the regular rate of an employee for overtime purposes. 

 To illustrate all of this, the DOL has provided the following example:

 Total Straight Time Wages: 

·      18 hours worked as a server × $7.25 per hour ($2.13 cash wage + $5.12 tip credit) = $130.50 

·      3 shifts worked as a bartender × $75.00 per shift = $225.00 

·      $130.50 + $225.00 + $160.00 (service charges)3 = $515.50 (total straight time pay) 

 Regular Rate of Pay Calculation: • 

·      $515.50 (total straight time pay) / 42 (total hours worked) = $12.27 (regular rate of pay) 

 Overtime Pay Due: 

·      $12.27 (regular rate of pay ) × .5 (half-time due for all hours worked over 40) × 2 (overtime hours) = $12.27 (overtime premium due)

 U.S. Department of Labor, Wage and Hour Division Opinion Letter FLSA2021-5

 As can be seen above, it is not always crystal clear how to go about calculating one’s overtime. This is especially true if you are a tipped employee. That is why it is it is imperative to seek out an attorney that specializes in employment law to assist you if you feel you are not being adequately compensated for your work. At Wiley Walsh, P.C. we specialize in employment, and we are more than happy to go over your situation so that we can assess what we are able to do for you. Feel free to contact us to schedule an appointment with one of our attorneys. 

 

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Photo of Jairo N. Castellanos Jairo N. Castellanos

We asked Jairo N. Castellanos, an experienced Trial Attorney in the Austin office of Rob Wiley, P.C., to impart his candid answers to a range of questions. After reading, you will be more more informed on the well-respected reputation that Mr. Castellanos

We asked Jairo N. Castellanos, an experienced Trial Attorney in the Austin office of Rob Wiley, P.C., to impart his candid answers to a range of questions. After reading, you will be more more informed on the well-respected reputation that Mr. Castellanos carries.

1. Why did you start practicing labor and employment law?

I think labor and employment law is a fascinating part of the law that impacts everyone. Most people spend nearly as much time at work as they do with their family.

2. Who is your favorite Supreme Court Justice?

My favorite sitting justice is Justice Sonia Sotomayor.

3. What skills do you value as an employment attorney?

I think an important skill to have as an employment attorney is the ability to tell people’s stories. It is important to be able to effectively convey entirety of the case beyond the legal aspects of it.

4. What do you do when you’re not practicing law?

I like to read fiction and spend time with my daughter.

5. What’s your favorite legal movie

That is a toss-up between A Civil Action and My Cousin Vinny.

6. What’s your favorite legal TV show

Always Sunny in Philadelphia when they are discussing bird law.

7. Have you ever learned something from one of your clients?

I’ve learned that there is no one size fits all solution to dealing with issues. Much like there is no one size fits all way of approaching a problem.

8. If you could argue any case in history, what would it be?

Brown v. Board of Education of Topeka.

9. What do you most want your clients to know about you?

That in me they can find someone that will fight his hardest for them regardless of the outcome.

10. Who’s your favorite judge?

Former Chief Justice John Marshall

Jairo N. Castellanos is a Trial Attorney in the Austin office of Rob Wiley, P.C.  He graduated from The University of Nevada in Las Vegas with a bachelor’s degree in 2009.  Mr. Castellanos then graduated from The University of Texas School of Law in 2015. Mr. Castellanos is fluent in English and Spanish.