In my previous blog, October 23, 2019, I discussed the complexities of compliance with wage and hour laws. Which apply…federal or state? What areas are covered? When these questions do arise, where do you find the answers? Can a payroll professional simply check the Fair Labor Standards Act (FLSA) to find the answer with a quick verification of any state requirement? Or is the state the main source to go to first with the FLSA as the fall back? The answer is not simple. In this blog series I will be discussing areas where payroll professionals need to ensure compliance by researching wage and hour laws. Today I am reviewing the first six areas that may require research to ensure compliance: White collar exemptions; minimum wage; tip credit; meals and lodging credits; overtime rules and regulations; and regular rate of pay.
White Collar Exemptions
The FLSA does address this issue in great detail. The question here is whether or not the state follows suit. Does the state follow the same regulations for determining if an employee is exempt from minimum wage and overtime regulations? This is especially important since the federal rules are being revamped and implemented as of January 1, 2020 for the first time since 2004. Since the increase under President Obama was stopped by the courts, this will be the first official change. The states have not had time to catch up to these new regulations but should address this issue in 2020 as the legislatures start meeting. So far, states that differ from the FLSA include Alaska, California, Hawaii and Montana.
The FLSA has a standard. However since the states were the first to introduce the concept of a minimum wage (Massachusetts circa 1912) and the federal rate has rarely kept up with inflation (the last update was 10 years ago) this is an area where payroll sees the biggest difference between the FLSA and the states. 29 states have a higher minimum wage than the federal, 14 states are equal to the $7.25, 2 states are lower, and 5 states have no minimum wage provisions.
The FLSA allows for tip credit against minimum wage for certain employees. The state requirements can range from forbidding tip credit as in CA and NV to matching the federal to anywhere in between. It is important to verify the definition of a tipped employee including the dollar limits if any and the percentage or dollar amount permitted for the credit.
Meals and Lodging Credit
The FLSA allows for a meals and lodging credit against minimum wage for certain employees. But it is a general rule stating that the fair market value can be deducted. Many states do allow a meal and/or lodging credit, but they may specify the exact amount that may be taken. California (see chart below) and New Hampshire are two states that specify the exact amounts that may be taken for the credit. It is important to verify if the state allows the credit and then the regulations on which employees employers are permitted to use the credit and the amounts permitted.
Overtime Rules and Regulations
Again the FLSA rules on this are well known. But a state may have its own method or regulations concerning the calculation of overtime. Alaska, California, Colorado and Nevada are four states that have a daily overtime requirement. Kentucky requires overtime for the 7th day worked.
Regular Rate of Pay
Regular rate of pay is the calculated rate that is used to pay overtime under the FLSA. It can be affected by such payments as nondiscretionary bonuses and commissions. The state could require a different definition. In this area, most states are less strict than the FLSA. An example is Arizona which requires that the minimum wage of the state be considered the regular rate of pay.
In part 3 of this series I will discuss the next 4 areas of research which includes on call or stand by pay, providing holiday/sick/vacation benefits, statements and payday notices and what is hours worked.