A bartender with earnings of $600 per week, averages tips of $250, and also receives one free meal per day from the employer. The employer's cost of the meal is $15. If the employee paid for the meal it would cost $125 per week. What are the employee's earnings for compensation purposes?

• A. $600
• B. $850
• C. $925
• D. $975

Answer: (D)

For compensation purposes, all forms of pay count as earnings, including tips and the value of meals provided by the employer. When meals are furnished, you include the meal’s fair market value—the amount the employee would pay if they bought it—not the employer’s cost to provide it. Here, wages are 600 and tips average 250, giving 850. The free meal has a market value of 125 per week, so add that. 850 + 125 = 975. So the employee’s earnings for compensation purposes are 975 per week.