Wage theft is an increasingly common practice in which employers deprive their workers of wages they are owed through practices like improperly logging their hours or simply failing to pay wages fully and promptly. The problem is serious enough that a report from the Center for Urban Economic Development at the University of Illinois at Chicago estimates that workers in Cook County lose more than one million dollars a day to the practice. One of the most common methods of wage theft is through the violation of overtime laws. Overtime in the restaurant industry is a particular problem because of how overtime rules interact with minimum wage provisions and the tip credit.
Understanding the Tip Credit
The tip credit is a specific exception to minimum wage law that allows employers to pay employees less than minimum wage on the assumption that the worker’s tips will make up the difference. Restaurants are one of the main industries that can take advantage of the tip credit because of their high percentage of tipped employees, such as servers and bartenders.
The exact amount of the tip credit varies by state. In Illinois, employers may deduct up to 40 percent of the Illinois minimum wage as tip credit, giving a new minimum wage of $4.95. The tip credit is a complex piece of the minimum wage law that can give rise to a variety of violations by employers. One of the most complicated of these issues related to the tip credit is how it interacts with overtime law.
The Tip Credit and Overtime
Generally speaking, overtime laws require employers to pay their workers one and a half times their hourly wage for working more than 40 hours in a week. However, restaurants and other employers can still take advantage of the tip credit. Unfortunately, many do so incorrectly. The issue is that many employers take the tip credit out before multiplying the hourly wage by one and a half, when they should take it out after. To illustrate the difference, suppose a server works 60 hours in one week and is paid $4.95 an hour plus tips.
For the first 40 hours, the employer can simply pay the $4.95, but for the last 20 they need to start paying overtime. The incorrect way to do the calculation would be to simply multiply the $4.95 wage by 1.5 giving a new wage of $7.43, which would result in a paycheck of $148.60 for those 20 hours. The proper way to perform the calculation is to multiply the full minimum wage, $8.25, by 1.5 to get $12.38, and then subtract the tip credit afterwards to get a minimum wage of $9.08 and a paycheck of $181.60, a serious difference from the incorrect calculation.
If you believe you have been the victim of an overtime violation, contact an Illinois employment lawyer today. Our firm helps clients in many towns across the northwest suburbs, including in Palatine, Barrington, and Schaumburg.
About the Author: Attorney Ken Apicella is a founding partner of DGAA focusing in the areas of personal injury, employment, insurance coverage disputes, and civil litigation. Ken earned his J.D. from DePaul University College of Law in 1999. He has been named a SuperLawyers Rising Star and a Forty Illinois Attorneys Under Forty to Watch. Ken has written and lectured for the Illinois Institute for Continuing Legal Education and regularly serves as a moderator at Northwest Suburban Bar Association's Continuing Legal Education seminars.