Do employee tips get rolled into the regular rate of pay for OT purposes?

The short answer is:  Generally no they do not get rolled into the regular rate of pay for the purpose of calculating an employee’s overtime (OT).  However, calculating the applicable regular rate of pay to be used in calculating overtime for a tip employee is a little different from that of non-tipped employees.

To illustrate, consider the following Midwestern restaurant chain.  The manager of one of the  regions is reviewing its overtime policy for its tipped employees.

FLSA allows tipped employees to be paid less than the minimum wage. In this state, like the federal law, tipped employees are paid a minimum of $2.13 per hour. In the state employers.  Employers of tipped employees can claim a tip credit up to the difference between the cash payment requirement of $2.13 and the minimum wage of $7.25.  So in this state the employer can take a maximum tip credit of $5.12 ($7.25 – $2.13).

The restaurant pays its employees a rate less than minimum. (The employees of course continue to work at the location because of the tips that they earn as waiters and servers!) The restaurant claims a tip credit of $5.12 per hour.   In the chain, the restaurant employees retain all their tips as required by FLSA, but they do take part in a valid tip pooling arrangement with other employees (bussers and service bartenders in this case example)  who regularly receive tips.

How NOT to calculate the OT rate for its tipped employees:

Unlike its non-tipped employees, the restaurant can not simply pay its tipped employees an overtime rate equal to 1.5 times the employees hourly rate.  That is the employer can not simply pay $3.20 per hour ($2.13 x 1.5) for the employees OT.

How to calculate the OT rate for its tipped employees:

So in this example, the employee’s OT rate should by $5.76 for hours worked over 40 in a week.

Fed. Min. Wage: $7.25

OT rate: 1.5

OT Hourly Rate:  $10.88 ($7.25 x 1.5)

minus employer tip credit: $5.12 ($7.25-$2.13)

OT rate for tipped employees : $5.76

So in practice, the actual OT rate will vary by state since different states have different minimums. However, in general the calculation follows as above.

Resources:

Fact Sheet #15: Tipped Employees Under the Fair Labor Standards Act (FLSA) 

California Tipped Employees