Unpaid Wages

Unpaid Wages

What are Unpaid Wages?

Both federal and state laws protect the rights of Indiana workers to receive the wages that they have earned. Although the federal and Indiana state laws often overlap, here are some common problems faced by Indiana workers.

Are you entitled to overtime wages?

Commonly referred to as the FLSA, the Fair Labor Standards Act requires employers to pay overtime wages at a rate of not less than one and one half times their base rate for all hours worked in excess of forty per workweek. This requirement applies to all non-exempt employees who work for a qualified employer.

Am I exempt?

For most employees, the answer is no. Thus, most employees are entitled to receive overtime compensation. The main categories of exempt employees are administrative, executive, and professional employees. Administrative employees commonly hold jobs such as human resources and quality control. Executive employees generally supervise at least two fill-time employees and are responsible for actions such as hiring, firing, and disciplining those employees. Professional employees often hold jobs that require years of schooling and licensing, such as doctors, lawyers, and professors. However, the vast majority of Indiana workers do not fall within any of the FLSA’s exempt categories and, therefore, are entitled to additional pay for overtime hours worked.

Does it matter if you’re paid a salary as opposed to being paid hourly?

For the most part, it does not. Employers often pay salaries to Indiana workers regardless of their exempt status. Even if your employer pays you a salary, you may still be entitled to receive additional overtime compensation for all hours worked in excess of 40 hours per workweek.

What are the most common overtime law violations?

Although most industries have been shown to not be in compliance with federal overtime laws, certain types of jobs have more frequent violations than others. Those include:

Assistant Managers;
Independent Contractors;
Technicians; and
Inside Salespersons.

Does it matter if you’re paid a commission?

Yes and no. Employees who receive commissions are often just as entitled to receive overtime compensation as employees who do not receive commissions. In fact, employees who receive commissions are usually entitled to receive more overtime compensation because the FLSA requires employers to include commissions into the calculation of overtime wages paid to employees. For example, a non-exempt employee who is paid $10/hour and works 50 hours in a workweek without receiving any commissions may be entitled to receive $50 in overtime wages for that week ($500/50 hours = $10/hour = $5/hour overtime premium x 10 hours of overtime). A non-exempt employee who is paid $10/hour plus a $100 commission and works 50 hours in a workweek may be entitled to $60 in overtime wages for that week ($500 + $100 = $600/50 hours = $12/hour = $6/hour overtime premium x 10 hours of overtime). The receipt of a commission does not necessarily impact the entitlement to overtime, but it may affect the amount of overtime wages to which the employee is entitled.

Are you being paid the required minimum wage?

The current federal minimum wage is $7.25/hour. If you are not being paid at least $7.25/hour (and $10.87/hour for all hours worked in excess of 40 per workweek), your employer may very well be violating your rights under the FLSA.

Do all employees have to pay at least $7.25/hour?

With very few exceptions, yes. The most common exception applies to “tipped” employees. Employers who employ certain service-based employees such as waitresses and valets may opt to take advantage of the tip credit which allows employees to receive a portion (but not all) of their wages via tips. However, many employers simply do not follow the rules when it comes to administering the tip credit. For example, employers are required to provide the following information to a tipped employee before the employer may use the tip credit:

(1) The amount of cash wage the employer is paying a tipped employee which must be at least $2.13 per hour;

(2) The additional amount claimed by the employer as a tip credit, which cannot exceed $5.12 (the difference between the minimum required cash wage of $2.13 and the current minimum wage of $7.25);

(3) That the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;

(4) That all tips received by the tipped employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and

(5) That the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.

If you are a tipped employee who is being paid less than $7.25/hour and your employer did not explain these things to you at the beginning of your employment, your rights are likely being violated.

What are some other common violations experienced by “tipped” employees?

(1) The FLSA prohibits any arrangement between the employer and the tipped employee whereby any part of the tip received becomes the property of the employer. A tip is the sole property of the tipped employee regardless of whether the employer takes a tip credit. If your employer is keeping any part of the tip you receive, your rights are likely being violated.

(2) The requirement that an employee must retain all tips does not preclude a valid tip pooling or sharing arrangement among employees who customarily and regularly receive tips. The FLSA does not impose a maximum contribution amount or percentage on valid mandatory tip pools. The employer, however, must notify tipped employees of any required tip pool contribution amount, may only take a tip credit for the amount of tips each tipped employee ultimately receives, and may not retain any of the employees’ tips for any other purpose. If a tipped employee is required to contribute to a tip pool that includes employees who do not customarily and regularly receive tips, the employee is owed all tips he or she contributed to the pool and the full $7.25/hour minimum wage.

(3) When an employee is employed by one employer in both a tipped and a non-tipped occupation, such as an employee employed both as a maintenance person and a waitperson, the tip credit is available only for the hours spent by the employee in the tipped occupation. The FLSA permits an employer to take the tip credit for some time that the tipped employee spends in duties related to the tipped occupation, even though such duties are not by themselves directed toward producing tips. For example, a waitperson who spends some time cleaning and setting tables, making coffee, and occasionally washing dishes or glasses is considered to be engaged in a tipped occupation even though these duties are not tip producing. However, where a tipped employee spends a substantial amount of time (in excess of 20% in the workweek) performing related duties, no tip credit may be taken for the time spent in such duties. If more than 20% of your time in a workweek is spent performing work for which you can not receive any tips, your employer should be paying you at least $7.25/hour for that portion of your workweek.

(4) A compulsory service charge, such as a set gratuity for larger tables at a restaurant, is not a tip. These charges are part of the employer’s gross receipts and the amount paid to employees from these service charges cannot be counted as tips received. They may, however, be used to satisfy the employer’s minimum wage and overtime obligations under the FLSA.

(5) Where tips are charged on a credit card and the employer must pay the credit card company a percentage on each sale, the employer may pay the employee the tip less that percentage. For example, where a credit card company charges an employer 3% on all sales charged to its credit service, the employer may pay the tipped employee 97% of the tips without violating the FLSA. However, this charge on the tip may not reduce the employee’s wage below $7.25/hour. Additionally, the amount due the employee must be paid no later than the regular payday and may not be held while the employer is awaiting reimbursement from the credit card company.

(6) Where an employee does not receive sufficient tips to make up the difference between the employer’s wage payment (which must be at least $2.13 per hour) and the minimum wage ($7.25/hour), the employer must make up the difference. An easy way of calculating this is as follows: take the total number of hours worked and multiply that by the federal minimum wage ($7.25/hour). If the employee did not receive that much compensation for that shift, their rights are likely being violated. For example, if a server works a 6 hour shift and is paid $2.13/hour by the employer and receives $20 in tips, they earned $32.78 for that shift ($2.13 x 6 + $20). They should have earned no less than $43.50 ($7.25 x 6). If the employer does not make up the difference of $10.72 ($43.50-$32.78), the employee’s rights are being violated.

(7) Employers cannot fail to pay an employee any wages and instead require them to work solely for tips. In the event an employee receives only tips and is paid no wages directly from the employer, the full minimum wage of $7.25/hour is owed to the employee.

(8) Employers cannot make deductions from an employee’s pay that cause the employee to be paid less than $7.25/hour. If deductions for walk-outs, breakage, or cash register shortages reduce the employee’s wages below the minimum wage, those deductions are illegal.

(9) Where the employer takes the tip credit, overtime is calculated on the full minimum wage of $7.25/hour, not on the employer’s portion of the wage payment (typically $2.13/hour). Additionally, employers may not take a larger tip credit for an overtime hour than for a straight time hour.

What if an employer fails to pay wages earned by its employees?

Both federal and Indiana state laws allow employees to recover unpaid or underpaid wages from their employers. Additionally, both federal and Indiana state laws allow employees to obtain substantial penalties from employers who violated their rights in addition to any legal fees and costs incurred.