You weren't paid what you were owed

Salaried does not mean no overtime

This is the most common and most expensive misunderstanding in American pay, and employers rely on it. Being put on a salary does not remove your right to overtime. Being given a title does not either.

Federal law splits workers into non-exempt and exempt. Non-exempt means you are owed time and a half for every hour over 40 in a week, whether you are paid hourly or on a salary. Exempt means you are not.

To be exempt, all three of these must be true. You are paid a fixed, predetermined salary that does not drop when the work is slow. That salary is at least $684 a week, which is $35,568 a year. And your actual day-to-day duties fit one of the defined categories — executive, administrative, professional, computer or outside sales.

Fail any one of the three and you are non-exempt, and you are owed overtime.

The duties test does most of the work and is where employers get it wrong. An “assistant manager” who spends most of the shift doing the same work as the crew is usually not exempt, whatever the title says. Genuine exempt duties involve things like supervising two or more people as your primary job, or exercising independent judgment on significant business matters.

Checking whether you are classified correctly

Start with the salary. If you are salaried and paid under $684 a week, you are almost certainly non-exempt and owed overtime no matter what your offer letter says.

Several states set a higher floor and the higher one wins where you work. California requires roughly $1,352 a week, Washington about $1,542, and New York between roughly $1,199 and $1,275 depending on the county. Someone exempt in Texas at $700 a week would be non-exempt for the same job in California.

That figure has been contested. A 2024 federal rule would have raised the national floor to $1,128 a week; a Texas court vacated it in November 2024, and the Department of Labor formally restored the older numbers in May 2026. It may change again — check the current figure rather than assuming.

One thing worth knowing: if an employer makes improper deductions from an exempt salary — docking pay for a partial day, say — it can destroy the exemption for that week and convert the person to non-exempt, with overtime owed.

If any of this describes you, the Department of Labor’s Wage and Hour Division will assess your classification for free. Job title carries no weight in that assessment. What you actually do does.

If you work for tips, the rules are different

Federal law lets an employer pay a tipped worker a cash wage of $2.13 an hour instead of the $7.25 federal minimum, on one condition: your tips must bring you to at least $7.25 for every hour. The gap they are allowed to count is called the tip credit, and the federal maximum is $5.12.

If your tips fall short in a given week, the employer must make up the difference. That test is per workweek and per employee — a good Saturday does not offset a dead Tuesday, and they cannot average across weeks.

Seven states do not allow a tip credit at all: Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington. In those states you must be paid the full state minimum in cash before a single tip is counted. Another 28 states and the District of Columbia set a tipped cash wage above $2.13. Check your own state, because where federal and state rules differ, you get the more generous one.

Tip pools, and what nobody is allowed to do

Managers and supervisors may never keep tips from a pool. That is an absolute prohibition under federal law, and it holds even if the manager worked the floor that shift. The only exception is a tip a customer gives a manager for service that manager alone provided.

The employer may never keep any portion of your tips, for any purpose. Not for breakage, not for walkouts, not for a house cut.

If the employer takes a tip credit, the pool can only include workers who customarily receive tips — servers, bartenders, bussers. Kitchen staff cannot be in it. Back-of-house can only be included where the employer pays everyone the full minimum wage and takes no tip credit at all. So if you are being paid $2.13 and told to tip out the kitchen, something is wrong.

Overtime is calculated from the full minimum wage and not from your cash wage. Federally that means time and a half on $7.25, then the credit applied — $5.76 an hour in direct cash, never one and a half times $2.13.

Employers may generally reduce a card tip by the actual card processing fee, but not below minimum wage, and several states ban the practice outright.

“No tax on tips” — what it actually is

The One Big Beautiful Bill Act, signed in July 2025, created a federal deduction for tip income. The headline calls it no tax on tips. It is not that, and the difference will cost you money if you plan around the headline.

It is a deduction, not an exemption. Your tips are still income, still reported, still withheld from in the normal way. At tax time you deduct up to $25,000 of qualified tips from your taxable income. That is a real saving — deducting $10,000 of tips saves roughly $1,200 if you are in the 12% bracket — but it arrives when you file, not in your paycheck.

Social Security and Medicare still come out of every tip. That is 7.65%, and this deduction does nothing to it. Your state may still tax the tips too.

Only voluntary tips count. A mandatory service charge — the automatic 18% added to a large party — is not a tip for this purpose, even if it is handed straight to you. The customer has to have been free to decide the amount.

Your occupation has to be one that customarily received tips on or before 31 December 2024. Treasury publishes the list, and it covers the obvious ones: servers, bartenders, hotel staff, delivery and rideshare drivers, hair stylists, barbers and nail technicians.

It phases out above $150,000 of income filing single or $300,000 filing jointly, which will not affect most people reading this.

It runs for tax years 2025 through 2028 and then expires unless Congress extends it. Do not build a long-term plan on it.

What this means for you practically

Keep reporting your tips. If you do not report them you lose the deduction entirely and you risk penalties on top. The deduction rewards accurate reporting rather than replacing it.

Expect your W-2 to look different. From 2026, employers report qualified tips separately in box 12 using code TP, with an occupation code in box 14b. If that box is empty or wrong, ask payroll before you file.

Do not adjust your spending in anticipation. Withholding did not change, so your weekly pay is the same. The benefit shows up as a smaller tax bill or a larger refund.

If you are self-employed and tipped — a driver, a stylist renting a chair — you may still qualify, but you continue to owe self-employment tax of 15.3% on the income, and the deduction cannot exceed the net income of the business. See Section 18.

There is a parallel deduction for overtime under the same law, and it has a catch worth knowing: only the premium counts. If your regular rate is $20 and overtime pays $30, the deductible part is the extra $10 an hour, not the full $30 — roughly a third of your overtime pay. It is capped at $12,500 filing single and runs through 2028. Only workers who are non-exempt under federal law qualify, which is another reason the classification above matters.

This is new law and the guidance is still settling. Confirm the current rules at irs.gov before you file, and Section 41 covers free filing help that will handle this for you.

Side work, and keeping your own record

Rolling silverware, restocking, cleaning and prep are side work. How much of it an employer can require at the tipped wage has been contested. The stricter time-limited version of the rule was vacated in 2024, and federal practice reverted to the older standard: related duties can sit inside a tipped job, but a genuinely separate non-tipped job cannot be paid at the tipped rate.

Some states regulate this more tightly than federal law does, which is one more reason to check yours.

The single most useful habit: write down what you actually made in tips each shift, before any pool, and compare it against what lands in your paycheck. A shortfall you can see is a shortfall you can prove, and without your own record it is your memory against their payroll system.

The Department of Labor publishes the specifics in Fact Sheets 15 and 15B, and its Wage and Hour Division takes complaints from tipped workers on exactly these issues — free, and retaliating against you for filing is illegal.

What counts

Not paying overtime at time and a half for hours over 40 in a week.

Requiring work before clocking in or after clocking out — setup, cleanup, closing counts, mandatory meetings, required training.

Paying below minimum wage, including through illegal deductions for uniforms, shortages, or broken equipment.

Withholding a final paycheck after you quit or are fired.

Illegal tip pooling, particularly managers or owners taking a share.

Misclassifying you as exempt or as a contractor to avoid overtime. See Section 18.

Filing costs nothing

The Department of Labor's Wage and Hour Division enforces federal minimum wage, overtime, and recordkeeping rules. There is no charge to file a complaint or for them to investigate. It's a federal agency and it does not charge workers or employers.

You can file by phone at 1-866-487-9243 or online.

Most states have their own labor agency, often with stronger protections. Many workers can pursue both.

The deadline is the thing that kills claims

Federal law gives you two years from the violation, extended to three if the employer's violation was willful.

State deadlines vary enormously — as short as 180 days in Texas, as long as six years in New York and New Jersey.

Waiting to see whether the money turns up on its own is the most common way a recoverable claim becomes unrecoverable. File early.

Records are what win claims

Keep your own log of hours worked, starting now. Employers are required to keep records; when theirs are incomplete, your contemporaneous notes carry real weight.

Save pay stubs, schedules, texts about hours, offer letters, and both W-2s and 1099s.

Photograph the schedule when it's posted. Screenshot group chats about shift changes.

If your employer's records are missing or wrong, write down what you remember as soon as you can.

Retaliation is illegal, and it still happens

It is against the law for an employer to fire, demote, cut hours, or otherwise punish you for filing a wage complaint.

That protection is real and it is not the same as a guarantee. Know it, use it, and document any change in your treatment after you file.

Talking to the Wage and Hour Division does not commit you to anything. You can ask questions before deciding.

For facilitators

Immigration status is a common fear here. As a general matter federal wage protections cover workers regardless of status, but the specifics are complicated and consequential.

Do not advise on this. Refer to a legal aid organization or a workers' rights center with immigration expertise, and know that referral before you teach this section.

Where to check this yourself

dol.gov for the Wage and Hour Division, at 1-866-487-9243. Your state labor agency for state claims and deadlines. Legal aid for anything involving immigration status.