Employees in the restaurant industry may pose problems for employers who are unfamiliar with the Fair Labor Standards Act (FLSA). Unlike typical non-exempt workers, they can be paid less than federal minimum wage rates if they earn more than $30 per month in tips, and those earnings are equal to, or in excess of, the nationwide standard. When this rule applies, employers are only required to pay tipped employees $2.13 per hour, rather than $7.25.

It's important for employers to know that while they may not have to pay employees minimum wage, other labor rights still apply. If workers are on-the-clock more than 40 hours a week, they are guaranteed premium pay rates for that time and attendance.

A recent Business Management Daily article points out that workers' tips do not count toward overtime pay calculations in California since gratuity is provided by customers and not employers. However, the FLSA does not allow employers to calculate overtime based on the $2.13 pay rate. They must earn at least time-and-a-half the current minimum wage if their hours worked goes into overtime.

The Department of Labor's Wage and Hour Division is currently cracking down on FLSA violations, especially in sectors are that are vulnerable to violations, such as the restaurant industry. Employers can avoid violations by installing the proper equipment, such as timeclock or a payroll processing system. 

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