Overtime rules in restaurants are messy: shifting salary thresholds, assistant “managers” who still run the line, and tipped pay that scrambles the maths every payroll. If you’re asking “who’s exempt, what’s the right overtime rate, and where do fair-workweek penalties bite?”, this guide gives you clean answers you can act on this week. You’ll learn the current federal baseline vs stricter state rules, how to self-audit assistant manager roles, the exact tipped-overtime formula (with examples), what’s illegal about averaging hours or using comp time, and where predictive scheduling adds extra pay. We’ll also cover payroll coding so taxes, tips, and service charges flow correctly, and share a 7-day triage plan to fix the basics fast.
Who is overtime-exempt in restaurants in 2025?
Under the FLSA, “exempt vs nonexempt restaurant” status hinges on two things: pay and what the person actually does. The duties tests cover three buckets: executive (runs a department, directs 2+ people, real say in hiring/firing), administrative (office/ops work using independent judgement), and professional (advanced knowledge roles).
After nationwide court decisions in November–December 2024, the DOL’s 2024 increases were vacated, so the current federal salary threshold remains $684/week ($35,568/year) while appeals continue. States can set higher bars, and many do.
Plain-English definition: a duties test asks, “What is the primary duty (managing, high-level admin judgement, or learned profession) and does the person really exercise discretion?” Titles don’t decide it; the day-to-day work and pay structure do.
See the DOL’s executive/administrative/professional (EAP) criteria for exact elements.
✔️ Mini-table: federal quick facts:
States that are stricter than federal (examples)
Some states set higher “exempt salary 2025” levels you must meet and pass the duties test. Always follow the most protective standard.
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California exempt salary 2025: $68,640/year (2× state minimum wage). Duties test follows CA law.
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New York exempt salary 2025: Downstate $1,237.50/week; Upstate $1,161.65/week (executive/administrative exemptions).
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Washington exempt salary threshold 2025: about $1,499.40/week (2.25× state minimum wage).
Title ≠ exemption (why many “managers” are nonexempt)
Job titles aren’t determinative. Many “assistant managers” spend most time expediting, bartending, or on the line, have limited scheduling/budget input, and little to no say on hiring/discipline; so they fail the executive duties test and are nonexempt.
If you’re wondering if “assistant managers are overtime exempt?”, start with the DOL’s criteria: primary duty must be management, they must direct 2+ FTEs, and their input on staffing must carry genuine weight; plus they must meet the salary threshold.
Are assistant managers exempt or not at my locations?
A simple way to audit the role you actually run, not the title.
Quick self-check: duties, discretion, and staff oversight
✅ Self-audit checklist (copy/paste):
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Primary duty: managing a restaurant/department (not mainly serving/cooking).
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Team leadership: routinely directs 2+ full-time equivalents.
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Staffing influence: real authority or “particular weight” in hiring, firing, discipline.
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Pay basis: salaried at/above applicable threshold (federal or higher state).
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Independent judgement: schedules, handles budgets/inventory, resolves issues without scripts.
If any box is “no,” treat as nonexempt and pay FLSA overtime 2025 accordingly.
🚩 Red flags that trigger back pay claims
Watch for patterns courts and plaintiffs’ lawyers love:
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High share of non-exempt work: expediting, dish, prep, running food.
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Script-bound decisions: little discretion; corporate playbook only.
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No scheduling or budget say: schedules made elsewhere; no spend authority.
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“Working manager” reality: >50% manual tasks most weeks.
What to do if the role fails the test
Move fast and paper the fix:
- Reclassify to nonexempt effective immediately; confirm in writing.
- Fix timekeeping: enable punch-in/out (geo-fence or QR on each site) and forbid off-the-clock work.
- True-up overtime: audit recent pay periods; pay owed OT at the correct regular rate.
- Adjust staffing or pay: add shift leads or raise salary to meet your state’s 2025 threshold (where duties genuinely fit).
- Update job descriptions & training: align duties with the executive criteria and preserve decision-making authority.
These steps track with DOL guidance: job titles don’t decide status; salary basis/level and duties do.
How do tipped roles and tip credit change overtime math?
The overtime rate is based on the regular rate, not the $2.13 cash wage.
The formula you must use
For tipped employee overtime calculation, work from the regular rate:
Regular rate = cash wage + tip credit + any service charges and other non-excludable pay.
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If you already paid straight time for all hours, the OT premium is 0.5 × regular rate for each hour over 40.
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Equivalent shortcut (tip credit overtime formula): (1.5 × applicable minimum wage) − tip credit.
Numeric example (federal minimum):
Cash wage $2.13; tip credit $5.12 (so $7.25 minimum). Regular rate = $7.25. Overtime rate = $10.88. If the server worked 48 hours and you already paid straight time for 48 hours at the cash wage, the additional OT premium due is 0.5 × $7.25 × 8 = $29.00.
Notes that matter:
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Include mandatory service charges in the regular rate; they are not tips.
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If your city/state minimum wage is higher, plug that into the formula.
Dual jobs, tip pools, and service charges
👉 Dual jobs tip credit: When staff do both tipped and non-tipped roles in a week, apply the dual jobs rule. The DOL withdrew the late-2021 “80/20 rule”; the agency returned to the classic dual-jobs framework in December 2024 after federal litigation. Keep distinct job codes if you alternate server and expediter roles.
👉 Tip pooling rules restaurant: Managers and supervisors cannot keep employees’ tips or join a mandatory tip pool. Only voluntary, direct tips to a manager for service the manager alone provided may be kept.
👉 Service charges: A compulsory service fee (banquets, large parties) is not a tip and must be included in the regular rate when calculating overtime. Keep it as a separate earning code in payroll.
State and local variations
Many states and cities set a higher cash wage and different tip credit rules, which change the regular-rate maths. Always check your state page (e.g., cash wage floors in CA cities with no tip credit; higher floors in NY and WA). When state law is more protective than federal, follow state law.
Can I average hours across weeks, give “comp time,” or pay day rates?
Three common mistakes that create OT liability.
Averaging across weeks is not allowed under FLSA
You can’t average 30 hours one week with 50 the next to dodge overtime. Under the FLSA, overtime is over 40 in a single workweek. Some states (like California) also require daily overtime after 8/12 hours. Build schedules and payroll on weekly (and where applicable, daily) rules.
Comp time is risky in the private sector
“Comp time” in lieu of overtime is generally not permitted for private-sector, non-exempt employees. Comp time is a special rule for public agencies under strict conditions; restaurants are private employers and must pay cash OT.
Day rates and piece rates still require overtime
Paying a day rate or piece rate doesn’t avoid overtime. Compute the regular rate by dividing total remuneration (including service charges and non-excludable bonuses) by total hours that week; then add 0.5 × regular rate for each hour over 40. See 29 CFR 778.112 for day-rate guidance.
How do taxes and payroll setup impact overtime in 2025?
Budget for OT plus new tax wrinkles.
Federal tax treatment of overtime
Overtime is taxable income. New for 2025, federal law allows a deduction for qualifying overtime compensation (caps apply; 2025–2028 window). This does not remove payroll or state/local taxes. Employees claim it on their return; you still withhold normally. Always confirm specifics with a tax adviser.
Quick reference (employer view)
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Continue standard withholding/FICA on OT.
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Provide clear W-2 boxes for overtime premium if the IRS issues coding guidance.
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Communicate that the deduction happens at filing time, not on the payslip.
Clean payroll coding for OT, tips, and service charges
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Separate earnings codes: base pay, tips, service charges (not tips), OT premium, predictability pay.
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Regular-rate compliance: include service charges and other non-excludable remuneration when calculating OT.
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Monthly audit: verify that OT premium = 0.5 × regular rate × OT hours for salaried-nonexempt, day-rate, and tipped teams.
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Documentation: keep change logs on rota edits and premium triggers (useful if “off-the-clock restaurant work” allegations arise).
What should I do this week if I’m unsure about exemptions?
A practical 7-day triage plan.
Day 1–2: Pull salary lists vs state thresholds
Export all salaried roles and compare to your state’s 2025 exempt salary threshold (e.g., NY: $1,237.50/wk downstate; $1,161.65/wk upstate; WA: L&I schedule shows 2025 weekly thresholds; CA remains a 2×-minimum-wage formula). Flag anyone below the bar for reclassification or a pay change.
Day 3–4: Duties interviews for assistant managers
Run short interviews covering primary duty, % of time managing, authority over 2+ FTEs, and influence on hiring/discipline. Compare notes to DOL’s executive/administrative tests; remember that assistant manager overtime exempt status depends on duties, not titles.
Day 5: Fix tipped-OT calculations
Implement the correct tip credit overtime formula: either 0.5 × regular rate (when straight time already paid) or 1.5 × applicable minimum − tip credit. Test one recent pay period using DOL’s example to validate maths.
Day 6–7: Policy tune-ups (scheduling, records, training)
If you operate in fair-workweek cities, add rest-between-shifts and predictability pay policies to your handbook and scheduling SOP. Train managers on timekeeping, no “off-the-clock” tasks, and how to publish rotas with proper notice.
Why Shiftbase helps you fix overtime fast
Shiftbase pulls the moving parts of restaurant pay into one clean flow: employee scheduling, time tracking, and absence management feed the right hours and premiums into payroll without re-keying. You can set regular-rate rules for tipped roles (cash wage, tip credit, service charges), apply state salary thresholds, and flag “clopening” or predictability pay before publishing the rota. Audit trails show who edited what and when; handy if you’re checking assistant manager duties or off-the-clock risks.
For finance, exports drop straight into Excel or your payroll app, and integrations keep systems in sync. Managers get clear alerts; staff get accurate payslips. Less spreadsheet drama, more compliant overtime.
Ready to make overtime boring, in the best way? Start your free 14-day trial of Shiftbase now.
