FLSA Questions Related to Tipped Employees in 2021
Rams Food Inc, the operator of three Denny’s restaurants in Houston, has recently been cited for wage and overtime violations by U.S. labor officials. According to Insurance Journal, the Hour Division and the U.S. Department of Labor’s Wage, presented a case where Rams Food violated the minimum wage, overtime, and recordkeeping provisions of the Fair Labor Standards Act.
This means the company is facing claims of wage and overtime violations where they kept tips meant for employees and made illegal deductions to employee paychecks.
The investigation recovered nearly $74,000 of tips that were paid back to employees and discovered that the franchise locations deducted uniform costs from both hourly and salary employees.
This case opens the debate regarding the rights that hourly workers have under the Fair Labor Standards Act (FLSA). The failure of recognizing overtime payments commonly happens when employees are not compensated at the correct pay rate for various positions they worked.
Both employers and employees need to know and understand the regulations to keep the process of payment for services assured. Keep reading as we analyze how to effectively comply with these labor laws in the United States.
What is the Fair Labor Standards Act?
The Fair Labor Standards Act went into effect in the United States 83 years ago on June 25, 1938. The Act establishes a minimum wage for all employees, outlines overtime payment rules, and youth employment standards. It also requests that employers keep accurate and updated time and pay records.
All employees are covered by the mandatory overtime provisions of the FLSA which can be categorized as follows:
- Minimum Wage: The current federal minimum wage of $7.25 per hour went into effect on July 24, 2009. This part of the FLSA mandates that employers must pay employees at least this much per hour of work. If an employee works in a state that requires a minimum wage above the federal minimum, the employer must pay the higher of the two minimums.
- Overtime Pay: The workweek is defined as 40 hours of work per week. If a non-exempt employee works over 40 hours a week, they must receive overtime pay. This means one-half times their regular pay rate. The FLSA does not define a limit to the number of hours an employee can work in a week. Also, overtime is not required for work on the weekends, holidays, or other days of rest unless the employee works more than 40 hours a week.
- Time and Pay Records: The FLSA requires employers to display a poster defining the Act and rules that they must follow. Also, to keep updated and accurate employee time and pay records.
- Child Labor Law: These laws are designed to protect a minor’s opportunity to get an education and prohibit employers from taking this away or harming their health and safety.
What Rights to Tipped Employees Have Under the Fair Labor Standards Act?
As we saw in the Rams Food Inc case, hiding or not reporting tips is against the law.
A tipped employee often works in restaurants, bars, hotels, and hair salons with an income of more than $30 a month in tips. If their employer decides to count tips as part of their wages, they must be accounted for as part of the tip credit provision. These employers must pay at least $2.13 per hour of work on top of tips.
In the case where employees’ tips combined with the $2.13 an hour do not add up to the federal minimum wage, their employer must pay the difference.
How Can Employers Avoid Wage and Hour Claims?
To avoid a wage and hour insurance claim, employers need to follow FLSA laws to ensure employees are compensated fairly. Not only is it unethical to not give proper compensation to employees, but it is also illegal.
Finally, remember that it is an employer’s responsibility to keep records of hours worked and wages paid. Keep a true and accurate record of all hours worked and all wages paid to each employee for a suggested minimum of three years.
To learn more about business insurance and protection for your organization, check out the SmartCompliance blog!
