North Carolina Tipped Minimum Wage Decrease

The minimum wage for tipped employees in North Carolina has been reduced to $2.13  per hour, for now, despite the increase in the state and federal minimum wage on July 24, 2008.

On July 24, both the federal and North Carolina minimum wages increased to $6.55 per hour. However, employees who earn at least $30 per month in tips can be paid less.

Until recently, the minimum wage for tipped workers in North Carolina was $2.43 per hour. However, that law expired on July 24, 2008 and despite hot debate, was not renewed by the state legislature.

Employers are permitted to take a tip credit of up to $4.42 per hour, according to the North Carolina Department of Labor. That amount is unchanged when a worker puts in overtime. So a tipped employee must be paid a cash wage of at least $5.41 per hour, when working overtime. That’s $9.83 per hour minus the tip credit of $4.42 per hour.

If the employee averages less than $4.42 per hour in tips, the employer must make up the difference in cash wages.

Although the term “cash wages” is used for wages earned, the employer is still responsible for taking taxes, FICA and other deductions from a tipped employee’s paycheck.

Many North Carolina employers are surprised to learn that tipped workers are entitled to overtime pay when working more than 40 hours in the pay period. When a tipped employee works overtime, he or she must earn at least $9.83 per hour in tips and wages. That’s 1.5 times the minimum wage of $6.55 per hour.

North Carolina requires that employers pay overtime when employees put in more than 40 hours in a workweek. The employer is free to designate the workweek, as long as it is consistent. However, the employer cannot pay overtime only when an employee puts in 80 or more hours in a two-week pay period.

Although the North Carolina and federal minimum wage is scheduled to increase again on July 24, 2009, the minimum wage for tipped employees is expected to remain the same. That’s because the maximum tip credit that employers can take in North Carolina will increase as well.

The following chart shows how the changes to the federal minimum wage have affected the tip credit allowed for employees in North Carolina.

Effective Date           Minimum Wage        Tip Credit Allowed   Cash Wage

Jan. 1, 2007              $6.15                                      $3.02              $3.13

July 24, 2007            $6.15                                      $3.72              $2.43

July 24, 2008            $6.55                                      $4.42              $2.13

July 24, 2009            $7.25                                      $5.12              $2.13