- Tipped employees are protected by the Fair Labor Standards Act.job series - waiter/waitress image by helenos from Fotolia.com
Federal regulations contained in the Fair Labor Standards Act protect restaurant employees who earn tips from unfair payroll practices by their employers. The law allows restaurants to pay these employees less than the minimum wage. However, the sum of the payroll contributions and the tips must equal the minimum wage. - The minimum wage is $7.25 as of July 24, 2009. Restaurants that employ youths under 20 years old may pay them a probationary "youth minimum wage" of $4.25 an hour for the first consecutive 90 calendar days of employment, but are prohibited from firing employees earning a higher wage to replace them with people at the youth minimum wage.
- Restaurants may pay wait staff and other tip earners a payroll wage of $2.13 an hour. However, the employee must make a minimum of $30 a month in tips to qualify for this reduced wage. The employer must also document evidence that the employee's combined earnings of tips and wages equals or exceeds the federal minimum wage.
- Under the Fair Labor Standards Act, when an employee works in excess of 40 hours per work week, the employer must pay one-and-a-half times the employee's hourly pay rate for each additional hour worked past 40. This overtime rate, also called "time-and-a-half," applies to tipped employees as well as those receiving standard payroll wages. Restaurants cannot pay tipped employees time-and-a-half based on the $2.13-an-hour rate. Federal law requires restaurants to pay tipped employees one-and-a-half times the applicable minimum wage.
- Restaurants must use tipped employees' total earnings--the sum of wages and tips--to calculate payroll contributions mandated by the Federal Insurance Contributions Act (FICA). At the end of each year, restaurants submit IRS Form 8027, which summarizes the establishment's total sales and employees' reported tips. The total tip earnings must be at least 8 percent of the total sales; restaurants must add to the reported tip income of each employee who reported tips equaling less than 8 percent of their reported sales. According to the Restaurant Resource Group, the most accurate way to do this is to add up each under-reporting tipped employees' gross sale receipts for the year and allocate a prorated portion of the shortfall to each employees' W2 form.
If an employee does not report enough tips for the restaurant to withhold its share of FICA and other taxes, the restaurant may withhold wages from the employee's next paycheck to make up the difference. At the end of the tax year, if restaurants cannot collect their share of taxes from employees' total tips, they must account for the amount not collected on the employee's W2 form and the restaurant's quarterly federal tax return. - The IRS makes agreements with restaurants under the Tip Rate Determination and Education Program in which the restaurants institute various voluntary methods to ensure that employees report all their tips. If restaurants participate in these programs, the IRS agrees it will only hold the restaurant liable for unpaid FICA taxes due to under-reported tips after examining all employees who have under-reported, according to the Restaurant Resource Group.
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