DOL Proposing Rules for Tip Credit Provisions

The U.S. Department of Labor (DOL) has announced a proposed rule for tip provisions of the Fair Labor Standards Act (FLSA).  The proposed rule would implement provisions of the Conso

Still life of a full tip jar

lidated Appropriations Act of 2018 (CAA). The proposal would also codify existing Wage and Hour Division (WHD) guidance into a rule.

According to the announcement: The CAA prohibits employers from keeping employees’ tips.  During the development of those provisions, the Department provided technical assistance to Members of Congress. DOL’s proposed rule would allow employers who do not take a tip credit to establish a tip pool to be shared between workers who receive tips and are paid the full minimum wage and employees that do not traditionally receive tips, such as dishwashers and cooks.

The proposed rule would not impact regulations providing that employers who take a tip credit may only have a tip pool among traditionally tipped employees. An employer may take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between the required cash wage (currently $2.13 per hour) and the federal minimum wage. Establishments utilizing a tip credit may only have a tip pool among traditionally tipped employees.

Additionally, the proposed rule reflects the Department’s guidance that an employer may take a tip credit for any amount of time an employee in a tipped occupation performs related non-tipped duties with tipped duties. For the employer to use the tip credit, the employee must perform non-tipped duties contemporaneous with, or within a reasonable time immediately before or after, performing the tipped duties. The proposed regulation also addresses which non-tipped duties are related to a tip-producing occupation.

In this notice of Proposed Rulemaking (NPRM), the Department Proposes to:

  • Explicitly prohibit employers, managers, and supervisors from keeping tips received by employees;
  • Remove regulatory language imposing restrictions on an employer’s use of tips when the employer does not take a tip credit. This would allow employers that do not take an FLSA tip credit to include a broader group of workers, such as cooks or dishwashers, in a mandatory tip pool.
  • Incorporate in the regulations, as provided under the CAA, new civil money penalties, currently not to exceed $1,100, that may be imposed when employers unlawfully keep tips.
  • Amend the regulations to reflect recent guidance explaining that an employer may take a tip credit for any amount of time that an employee in a tipped occupation performs related non-tipped duties contemporaneously with his or her tipped duties, or for a reasonable time immediately before or after performing the tipped duties.
  • Withdraw the Department’s NPRM, published on December 5, 2017, that proposed changes to tip regulations as that NPRM was superseded by the CAA.

After publication this NPRM will be available for review and public comment for 60 days. The Department encourages interested parties to submit comments on the proposed rule. The NPRM, along with the procedures for submitting comments, can be found at the WHD’s Proposed Rule website.

Opinion Letters Issued

Despite all the “turmoil” that is going on over at the U.S. Department of Labor (DOL), the work is still continuing. The DOL has issued three new opinion letters that address compliance issues related to the Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act (FMLA). An opinion letter is an official, written opinion by the Department’s Wage and Hour Division on how a particular law applies in specific circumstances presented by the individual or entity that requested the letter.

The latest opinion letters are:

  • FMLA2019-2-A: Addressing whether attending a Committee on Special Education meeting to discuss a child’s Individualized Education Program qualifies as FMLA leave;
  • FLSA2019-11: Addressing the application of the section 7(k) overtime exemption to public agency employees engaged in both fire protection and law enforcement activities; and
  • FLSA2019-12: Addressing the employment status of volunteer reserve deputies who perform paid extra duty work for third parties.

Be sure to keep up with the latest rule changes and opinion letters from the DOL with a subscription to Payroll 24/7.  Only $149 per year for all the latest payroll news right to your inbox.

Our First Payroll Lecture is Here

I am offering my first payroll lecture of the year next week on June 18th.  The subject will be travel pay. The lecture is two hours from 10:00 am to Noon Pacific time.  It is approved by the APA for 2 RCHs.  The nominal charge for the webinar is $99.  You can register under our Shop on our website. 

Learning Objectives:

  • Understand the FLSA requirements for paying an employee who travels
  • Comprehend the best practices for tracking and paying for travel pay
  • Understand the IRS requirements for taxing travel pay reimbursements including per diems and accountable plans.

New DOL Wage and Hour Opinion Letters Have Been Delivered. Let’s Look Inside…

The U.S. Department of Labor (DOL) announced on March 14th, that they had released new opinion letters on their website.  These letters address the compliance issues related to the Family and Medical Leave Act (FMLA) and the Fair Labor Standards Act (FLSA).  Before we review the new opinion letters for the FLSA, let’s do a quick review of what exactly is an opinion letter.

The Wage and Hour Division issues guidance primarily through Opinion Letters, Ruling Letters, Administrator Interpretations, and Field Assistance Bulletins. They are provided on the DOL website.

An interpretation or ruling issued by the Administrator interpreting the Fair Labor Standards Act (FLSA), the Davis-Bacon Act (DBA), or the Walsh-Healey Public Contracts Act (PCA) is an official ruling or interpretation of the Wage and Hour Division for purposes of the Portal-to-Portal Act. 29 U.S.C. § 259. Such rulings provide a potential good faith reliance defense for actions that may otherwise constitute violations of the FLSA, DBA, or PCA. Prior rulings and interpretations are affected by changes to the applicable statute or regulation so an employer should always periodically review any relevant opinion letters that it uses as a basis for a policy to ensure that changes have not occurred. From time to time the DOL updates its interpretations in response to new information, such as court decisions, and may withdraw a ruling or interpretation in whole or in part.

Now on to the new letters just recently issued.

FLSA2019-1:  This opinion letter clarifies the FLSA wage and recordkeeping requirements for residential janitors and the “good faith” defense. Discusses what to do if the FLSA and state requirements do not match. In this case the state of New York did not consider the employee subject to minimum wage and overtime but the FLSA does.

FLSA2019-2: Addresses the FLSA compliance related to the compensability of time spent participating in an employer-sponsored community service program.

I always encourage employers to use the opinion letters when formulating policy.  If you don’t see an opinion letter that addresses your issue, you may ask for one to be issued on that policy or question by submitting the request online.  Of course, not all requests submitted result in an opinion letter being issued. Or it may be issued but as a non-administrative letter which holds less weight. But it doesn’t hurt to ask!

Reminder: Keep up with the payroll news by subscribing to Vicki’s e-news alerts, Payroll 24/7.  The latest payroll news when you need it, right to your inbox.

With Higher Minimum Wages Can Come Higher Penalties

As my Payroll 24/7 subscribers found out today, Illinois is increasing its minimum wage to $15.00 per hour by the 2025.  But the bill, Senate Bill 1, also increases the penalties for failure to follow

the new requirements.  One of blogs that I follow, Wage & Hour Insights has an excellent post on this very issue.  I urge you to take a moment to read Bill Pokorny’s blog on the new Illinois minimum wage violations penalties, Stiff New Employer Penalties Included in Illinois $15 Minimum Wage Law. It is an excellent source on the new requirements.

Average vs. Weighted Average When It Comes to Calculating Overtime Rates–Another Use for Algebra!

Calculating overtime is always tricky.  What rate is the “regular rate of pay” as required by the Fair Labor Standards Act (FLSA) is a question that must be answered each time for each calculation.  What can make this even more difficult is when the employee works at more than one rate in the workweek.  What rate do you use for the “regular rate of pay” if the employee has two or more hourly rates during the workweek? Can you simply average the different rates or is something more required?  The Department of Labor recently addressed this situation in Opinion Letter FLSA 2018-28, dated December 21, 2018.

Facts of the letter:  The employer in question wanted to determine if their compensation plan, which pays an average hourly rate that may vary from workweek to workweek, complies with the FLSA. It was concerned in both the area of minimum wage and calculating the overtime rate.  The employer pays a different rate for when an employee is working with a client as opposed to when the employee is traveling between clients.  It makes sure that the typical standard rate of pay is $10.00 per hour and if the employee works over 40 hours in any given workweek, they are paid overtime based on the $10.00 rate.

The DOL agreed that the employer followed the minimum wage requirement as the employer is paying well above the minimum wage of $7.25 per hour.  However, the problem for the employer is with the rate used to calculate overtime.  According to the letter:

…If the employer always assumes a regular rate of pay of $10 per hour when calculating overtime due, then the employer will not pay all overtime due to employees whose actual regular rate of pay exceeds $10 per hour. 29 C.F.R. § 778.107. Neither an employer nor an employee may arbitrarily choose the regular rate of pay; it is an “actual fact” based on “mathematical computation.” Walling v. Youngerman-Reynolds Hardwood Co., Inc., 325 U.S. 419, 42425 (1945); 29 C.F.R. § 778.108. That said, the compensation plan does comply with the FLSA’s overtime requirements for all employees whose actual regular rates of pay are less than $10 per hour, as an employer may choose to pay an overtime premium in excess of the statutorily required amount.

So what rate should an employer use to calculate the overtime in situations where the employee is working two or more rates within the workweek?  The rate is determined by what is known as a “weighted average” not an average of the rates. The DOL addresses this method in Fact Sheet #23: Overtime Pay Requirements of the FLSAIt reads as follows:

…Where an employee in a single workweek works at two or more different types of work for which different straight-time rates have been established, the regular rate for that week is the weighted average of such rates. That is, the earnings from all such rates are added together and this total is then divided by the total number of hours worked at all jobs. In addition, section 7(g)(2) of the FLSA allows, under specified conditions, the computation of overtime pay based on one and one-half times the hourly rate in effect when the overtime work is performed. The requirements for computing overtime pay pursuant to section 7(g)(2) are prescribed in 29 CFR 778.415 through 778.421.

Here is an example of a weighted average calculation: The employee has worked the following hours at the following rates for the workweek:

Step 1: To determine the weighted average the following calculations would be required:

Step 2: Divide the total earnings by the total hours worked to determine the regular rate of pay

$475.75 divided by 43 = $11.06 (regular rate of pay)

Step 3: Determine the premium pay for overtime by multiplying the regular rate of pay by .5 (or divide by 2) then multiplying that amount by the number of overtime hours

$11.06 x .5 x 3 = $16.59

Step 4: Determine the total weekly compensation by adding the total earnings (step 1) and the premium pay (step 3): $475.75 + $16.59 = $492.34.  $492.34 is the total weekly compensation.

In closing, it must be remembered that it is the employer’s responsibility to ensure that the regular rate of pay used for overtime calculations is the correct one.

 

Paying Extra to Exempt Employees

I always seem to get questions this time of year about paying overtime or “extra pay” to exempt employees.  Many departments or companies have this time of year as their busiest and want to make sure that exempt employees can earn extra monies during this time without endangering their exempt status or actually converting those employees to nonexempt.  I want to refer my followers to a great blog by Bill Pokorny of Franczek Radelet written for the Wage and Hour Insights blog that answers this exact question. I hope you find it useful.

Election Day a National Holiday?

Well it’s almost over, the 2018 election. Still having a few counts here and there with a runoff election still to come. But all in all, the 2018 election has come and gone. The only thing that remains, as it does after every election cycle here in the United States, is the discussion of making election day a national holiday. But what exactly does a “national holiday” mean here in the United States?

It appears to me that most people who discuss having election day designated as a national holiday don’t understand how holidays work here in this country. The United States does not have national holidays. It’s that simple. Yes, we have days that are designated as a holiday on the federal level. But these days are not official holidays for all employees in the country. They are, rather, the days that federal employees are given off with pay. I have stated this before, in other blogs, but will state once again. The United States is the only country that does not mandate that employees receive days off with pay in honor of national holidays. When I say other countries, I am speaking of course of industrialized countries. But this list of industrialized countries includes Chad, Peru, Slovenia and Sudan. So, we are not only talking about major European countries such as Germany or France. But if we were just looking at European countries let’s take Germany as an example. Germany has one national public holiday which is their German Unity Day, with the remaining 9 to 13 holidays being regulated by what they call their states even though some of them are held nationwide. Now this is in addition to 20 days of vacation as well as additional dates that the employer may give as a public holiday. Yet despite this they have a very strong economy. Yet here in the United States is not mandated for all employees to have the nation’s birthday, July 4th, off with pay.

Therefore, when local, regional, statewide, and national elected officials talk of having our election day as a national holiday it means nothing to the average worker if it were simply to be added to the holidays we already have. Yes, many employees may get Christmas off with pay, or Fourth of July off with pay, but not all employees are required to be given the day off with pay. It all depends on the company’s or employer’s policy. According to the Bureau of Labor Statistics workers in private industry in the United States receive an average of eight paid holidays per year based on the latest statistics in 2017. Workers in the manufacturing and information industries are more likely to receive paid holidays (97%). But workers in the leisure or hospitality industry only receive paid holidays 37% of the time. Not all workers receive the same holidays or the same number of holidays. For example, again the Bureau of Labor Statistics states that workers in manufacturing and financial activities receive an average of nine paid holidays per year while workers in leisure and hospitality receive an average of six paid holidays per year. For clarification, there are 10 annual federal holidays with Inauguration Day occurring only once every four years for a total of 11 days.

Before you start the discussion of employees who would not be able to have a day off due to their type of work such as first responders, hospitals and even restaurants, other countries have already addressed this issue quite easily.  It is usual for the employee who must work on a “mandated holiday” to have another day off with pay. So, if on a Monday holiday, I would have to work as a police officer, I might get Tuesday or Wednesday off with pay in addition to my normal days off.

My question to all the elected officials and others who advocate a national day off to vote is this:  Where would this national election day fall? Would it establish our first and only mandated national holiday? Or would it just simply be added to the calendar as another day to shop, BBQ or sleep in, if and only if, my employer decided to give me the day off with pay?

CA Adopts ABC Test for Independent Contractors

On Monday, April 30, the California Supreme Court issued a landmark [Dynamex Operations West v. Superior Ct., Cal. Sup. Ct., Dkt. No. S222732, 4/30/18] decision basically stating that the “ABC Test” is to be used when determining whether a worker is an employee or independent contractor for purposes of California wage orders. Previous to this latest decision the court case of S.G. Borello & Sons, Inc. v. Department of Industrial Relations, Cal. Sup. Ct., 769 P.2d 399, 3/23/89) was used to determine employee status. In that case the principal test of an employment relationship was whether the person to whom services were rendered has the right to control the manner and means of accomplishing the result desired. Under Dynamex, the Court embraced a standard that presumes all workers are employees instead of contractors and places the burden on classifying an independent contractor under the ABC test.

For a detailed analysis of this case and how you might have to adjust your hiring decisions, I will refer you to the Labor & Employment Law Blog posted by Timothy Kim for the law firm of Sheppard Mullin.

FLSA Video Training Has Arrived at DOL/WHD

The Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) is launching a new series of brief, plain-language videos to help employers understand their legal obligations when it comes to calculating overtime etc.  According the the WHD website these videos “strip away the legalese and provide employers with basic information…”  The topics provided so far are:

  • Coverage: Does the Fair Labor Standards Act (FLSA) apply to my business?
  • Minimum Wage: What minimum wage requirements apply to my business?
  • Deductions: Can I charge my employees for uniforms or other business expenses?
  • Hours Worked: Do I have to Pay for that time?
  • Overtime: When do I owe overtime compensation and how do I pay it correctly?

The videos are very well done and cover the rules quite nicely.  For example the overtime video does go into all the calculations needed for regular rate of pay.  They last an average of seven or eight minutes each. If you are looking for a good basic training on these topics listed check out the videos from WHD.