Under the FLSA, non-exempt employees must be paid at 1.5× their "regular rate of pay" for hours worked beyond 40 in a single workweek. For tipped workers, this gets complicated because the regular rate is calculated differently from the cash wage.
The overtime math for tipped employees:
- Regular rate = the full minimum wage, NOT the tipped direct wage. (For federal: $7.25, not $2.13.)
- Overtime rate = 1.5 × regular rate = $10.88/hr federal
- Tip credit on overtime hours = same $5.12, deducted from $10.88 = $5.76/hr direct wage for OT hours
So a tipped employee working 45 hours at the federal floor would receive:
- 40 hrs × $2.13 = $85.20 (regular tipped wage)
- 5 hrs × $5.76 = $28.80 (overtime tipped wage)
- Total direct wages: $114 (plus all tips earned)
Service charges (not tips) are included in the regular rate, which raises the overtime rate. Tips are excluded from the regular rate calculation.
Common violations: paying overtime at 1.5× the cash wage instead of 1.5× the minimum wage; failing to pay overtime to "salaried" tipped workers who are actually non-exempt; misclassifying tipped workers as exempt managers to avoid overtime.
State overtime rules can be stricter. California requires daily overtime (over 8 hrs/day) plus weekly. Colorado has a 12-hour rule. Always check both state and federal rules.