The Fair Labor Standards Act (FLSA) outlines federal tip credit and tip pooling provisions.
What is tip credit and tip pooling under Federal Law?
- Under a valid tip credit policy, employers are able to pay tipped employees an hourly rate that is less than minimum wage – provided that the tipped employee’s hourly wage plus tips equals or exceeds the required minimum wage.
- A tip pooling agreement requires tipped employees to deposit a portion of their customer tips into a common “tip pool” to be shared with other employees. A valid Tip Pooling arrangement must meet all the requirements of the FLSA provisions (and any state requirements) for tipped employees.
Continue reading Federal Tip Credit and Tip Pooling Basics
The US Department of Labor (DOL) recently issued an opinion letter that reminds employers how to properly calculate an employee’s regular rate of pay for purposes of overtime compensation.
In this letter, the DOL was responding to an inquiry about whether a company’s compensation plan, which pays an average hourly rate that may vary from workweek to workweek, complies with the Fair Labor Standards Act (FLSA). Specifically, to calculate weekly pay, the company was multiplying an employee’s time with clients by his or her hourly pay rate for such work. The employer then divided the product by the employee’s total hours worked. The company then explained that its “standard rate of pay” was $10 per hour and that it paid overtime based on the $10 per hour rate.
According to the DOL, while the employer’s plan likely complied with the FLSA’s minimum wage requirement (that an employee is paid at least minimum wage for every hour worked), it might not comply with the FLSA’s overtime requirement. Continue reading NEW GUIDANCE: DOL Reminds Employers How To Properly Calculate The Regular Rate Of Pay
On November 8, 2018, the US Department of Labor issued a new Opinion letter (Opinion Letter FLSA 2018-27) wherein the DOL rescinded the 80/20 tip credit rule. Under this rule, employers were not able to use the tip credit for tipped employees who spend more than 20% of their time performing allegedly non-tip generating duties.
In lieu of this rule, the DOL has stated that ““We do not intend to place a limitation on the amount of duties related to a tip-producing occupation that may be performed, so long as they are performed contemporaneously with direct customer-service duties and all other requirements of the Act are met.”
The US Department of Labor has certainly been busy as of late. In addition to creating a new agency and developing two new websites, the DOL has also issued six new opinion letters, which interpret various issues under the federal Fair Labor Standards Act (FLSA) and Family and Medical Leave Act (FMLA).
FMLA Opinion Letters
#1. Can organ-donation surgery qualify as a “serious health condition” under the FMLA?
In the first letter, the DOL addressed the question of whether an organ donor qualifies as an individual with a serious health condition for purposes of the FMLA.
The DOL concluded that organ donation does qualify as a serious health condition because the donor often will often require an overnight stay in the hospital.
#2. Does this employer’s no-fault attendance policy violate the FMLA?
In the second letter, the DOL addressed the question of whether a no-fault attendance policy that “freezes” during an employee’s FMLA leave (i.e. remains at the number of attendance points that the employee accrued prior to taking FMLA leave) violates the FMLA. Continue reading NEW GUIDANCE: Department of Labor Publishes 6 New Opinion Letters
On April 2, 2018, the US Supreme Court settled a contentious battle of interpretations under the Fair Labor Standards Act (FLSA): are auto dealership service advisors exempt under the FLSA? To the relief of dealerships across the country, the court held that they are exempt. While addressing a narrow range of employees (service advisors), this case was a victory for employers and arguably establishes (or re-establishes) an employer’s right to reasonably interpret the law in its employment practices.
Some Brief History
The FLSA provides that “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” is exempt from overtime. Until 2011, the US Department of Labor had interpreted this provision to mean that auto dealership service providers were exempt because such employees were engaged in servicing automobiles by determining the service needs of vehicles and selling supplemental services to customers. In 2011, the DOL reversed course (and 40 years of precedent) and stated that service advisors are non-exempt, thus entitling them to overtime pay and creating significant wage and hour liability for auto dealerships.
Various service providers took this opportunity to bring a class action lawsuit against Encino Motorcars for unpaid overtime and other wage and hour violations. After making it all the way to the Supreme Court, back down to the Ninth Circuit Court of Appeals, and back up to the Supreme Court again, the case has been settled.
In short, the Supreme Court held that the law was clear: service advisors are exempt from overtime pay under the FLSA because they are “salesme[n]…primarily engaged in…servicing automobiles.”
An Important Note
In ruling for the dealership, the Supreme Court rejected the commonly cited principle of interpretation that the FLSA’s exemptions should be interpreted narrowly. Instead, the court held that a court’s role in reading the FLSA exemptions is to give them a fair reading. This means that moving forward, instead of interpreting the law in a manner that all but assumes an employer has misclassified an employee as exempt, courts should afford employers a fair opportunity to demonstrate that their interpretation of the law is reasonable.
Buried in its 2,232 pages, the 2017 Omnibus Budget Bill contains a short provision making important amendments to the Fair Labor Standards Act as it relates to tip pooling arrangements. These amendments may have immediate and important ramifications for employers and may require changes to existing tip pooling arrangements in order to remain in compliance with the law.
The Long and Short of It
First, the bill makes it unlawful for employers, including managers and supervisors, to keep any portion of tips received by their employees, regardless of whether or not the employer takes a tip credit. Previously, the FLSA was vague on whether an employer could retain a portion of employee tips when the employer did not take a tip credit (i.e., when the employer paid the employee at least minimum wage not including tips). This update to the law brings the FLSA in line with previous Department of Labor (DOL) regulations that prohibited employers from sharing in employee tips at any time.
The second significant change brought about by the bill is that the FLSA now permits employers to require tipped employees to share their tips with back of house employees when the employer does not take a tip credit. Thus, under the FLSA, employers who pay their tipped employees at least the full federal minimum wage may now require tipped employees such as severs and bartenders to share their tips with employees who are not customarily tipped, such as dishwashers, cooks, and bussers. This amendment invalidates previous DOL regulations prohibiting employers from requiring such tip sharing with non-tipped employees.
DOL Guidance Continue reading FLSA Requirements for Tip Pooling Quietly Changed
On January 8, 2018, the US Department of Labor issued a revised Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act, which sets forth an employer-friendly standard for determining whether an intern is considered an employee for purposes of the FLSA.
The new guidance materials were issued in response to the federal courts’ widespread rejection of the DOL’s former guidelines on this issue where the DOL had set forth 6 required factors that must be met before an unpaid intern could be categorized as such and excluded from pay requirements of the FLSA. These old guidelines also emphasized that internships in the “for-profit” private sector “will most often be viewed as employment” unless all 6 required factors were met.
With the revised Fact Sheet #71, the DOL’s position now aligns with that of the Courts who had previously rejected the DOL’s more stringent 6-factor test. Under these new guidelines, the DOL now instructs employers to consider the following 7 factors when determining whether an intern is an employee for purposes of the FLSA:
- The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
- The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
- The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
- The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
- The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
The DOL has clarified that “no single factor is determinative” and the ultimate answer depends on the “unique circumstances of each case.”
Take home for employers
With this new test, the DOL has made it easier for a private employer to create an unpaid internship program that is lawful under the FLSA provided that an analysis of the 7 factors shows that, on balance, the intern benefits more from the relationship than the employer does. This means that employers need to try to structure their internship programs in such a way that all 7 factors lean toward an internship—rather than an employer-employee relationship.
The US Department of Labor recently announced that it is increasing the penalties associated with violations of several employment laws. The penalty increase applies to all penalties assessed after January 2, 2018 for violations that took place after November 2, 2015.
The increase in penalties applies to the following violations, among others:
||Old Maximum Penalty
||New Maximum Penalty
|Family Medical Leave Act
||Failure to post required FMLA notices
|Fair Labor Standards Act
||Willful or repeated violations the FLSA minimum wage and/or overtime provisions
|Violations of the FLSA child labor law provisions
|Violations of the FLSA child labor law provisions that result in serious injury or death
|Willful or repeated violations of the FLSA child labor law provisions that result in serious injury or death
|Occupational Safety and Health Act
||Violations of the OSHA provisions
|Willful or repeated violations of the OSHA provisions
|Failure to post required OSHA notices
|Failure-to-abate violations of the OSHA provisions
In addition to the above-listed laws, the DOL also increased the penalties for violations of several other laws, including the Employee Retirement Income Security Act, the Immigration and Nationality Act, and the Employee Polygraph Protection Act, among others.
For a complete table of the increased penalties, click here.
While the minimum pay required for commissioned employees to qualify for an overtime exemption is not changing in 2018, there are several states where the minimum pay requirements for a “commissioned employee overtime exemption” are increasing.
These increases (i.e. in California, Colorado, Minnesota, Oregon, Washington, and Washington DC) are occurring because the pay an inside or commissioned salesperson must receive to qualify for the inside or “commissioned” sales exemption (as established under state law) are scheduled to increase in 2018 (December 31st for New York employers).
Under the Fair Labor Standards Act (FLSA), in order for a commissioned salesperson to qualify for the FLSA’s 7(i) overtime exception (Commissioned Salesperson Exemption), the following three conditions must be met:
- The employee must be employed by a retail or service establishment, and
- The employee’s regular rate of pay must exceed one and one-half times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked, and
- More than half the employee’s total earnings in a representative period must consist of commissions.
Unless all three conditions are met, the Commissioned Salesperson Exemption is not applicable, and overtime premium pay must be paid for all hours worked over 40 in a workweek at time and one-half the regular rate of pay.
The below table sets forth the changes to the minimum salary requirements for exempt employees in these states. In those instances where the state minimum salary requirements are lower than the above-listed FLSA requirements, the higher salary threshold applies for employers who are subject to FLSA in order for employees to qualify for an exemption under the FLSA. Continue reading Is The Minimum Pay Required For Commissioned Employees To Qualify For An Overtime Exemption Increasing In Your State In 2018?
While the minimum salary requirements for “white collar” employees (executive, administrative, or professional employees) is not changing in 2018 (at least not until/unless the Department of Labor announces a new Overtime Rule), there are several states where the minimum salary requirements for exempt employees is increasing in 2018 (December 31st for New York employers).
These increases (i.e. in Alaska, California, Colorado, Maine, New York, and Oregon) are occurring because the minimum exempt salary rates for these employees (as established under state law) are scheduled to increase in 2018 (December 31st for New York employers).
Under the Fair Labor Standards Act (FLSA), the minimum salary requirements for white collar employees is as follows:
Continue reading Check to See if the Minimum Required Salary For Exempt Employees is Increasing In Your State