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.
Employers across the country can breathe a collective sigh of relief. On August 31, 2017, the US District Court for the Eastern District of Texas issued a final ruling that officially invalidates (or kills) the DOL Overtime rule. In short, the Court found that the DOL had “overstepped its bounds” by setting such a high salary level for the executive, administrative, and professional exemptions.
What does this mean for employers?
In short, this ruling means that the exempt salary threshold for executive, administrative, and professional employees remains at $23,600 per year (or at the established state level, if the employer is in a state that has implemented a higher exempt salary threshold).
One thing of note, the Court clarified that its ruling did not mean that the DOL could not set any minimum salary level as one of the tests for determining whether an individual is exempt from overtime under these exemptions. With this in mind, there remains a possibility that the DOL may attempt to increase the minimum salary level in the future. However, if that increase were to occur, it would most likely be a much less drastic increase (and not a doubling of the existing salary level).
At the present time, the DOL has not announced any intention to seek an increase of the salary level. That being said, employers should prepare for an eventual increase to the exempt salary threshold, even though it isn’t clear what the final number will be.
In a recent decision (Lashawna C. v. Perez (2017 WL 664453)), the EEOC reminds employers that sometimes only one insensitive comment is all it takes to create a hostile work environment and religious harassment.
The case arose from a single comment a supervisor (within the Department of Labor) made to a (Jewish) subordinate in an email exchange regarding the subordinate’s work hours and work schedule.
The subordinate had commented that government employees generally work shorter hours than private sector employees, and lately she was “working like a civilian.”
In response, the supervisor said:
Wow … then I must be a damn fool … cause I’ve been working like a Hebrew slave the last 9 years and don’t have enough time to take off … at least somebody got it right.
In explaining his comment to the EEOC, the supervisor said that he used the term “Hebrew slave” in his email to her because this was a “common term that’s used to reflect individuals who work with little means to produce great things.”
While the DOL’s position was that this single comment was not severe enough to constitute harassment because he applied the term to himself, instead of to the subordinate, the EEOC disagreed – finding that the supervisor engaged in religious harassment and awarded the subordinate $20,000.
Take Home For Employers
While this holding is inconsistent not only with court rulings, but also the language of the relevant statute, which only bans harassment when it is sufficiently pervasive as to affect “terms” or “conditions of employment,” it provides an important “teachable moment” for employers to use when training their managerial staff about communicating with subordinates. Specifically, managers and supervisors should be trained on what is appropriate and not appropriate to say to subordinates.
Under the Inflation Adjustment Act, the DOL is required to adjust its civil monetary penalty levels to account for inflation no later than January 15 of each year. In accordance with this obligation, the DOL recently issued a final rule that increases penalties assessed or enforced in its regulations.
These increased penalties apply to regulations enforced by the following federal agencies:
- Office of Workers’ Compensation Programs;
- Wage and Hour Division;
- Occupational Safety and Health Administration (OSHA);
- Employee Benefits Security Administration; and
- Mine Safety and Health Administration.
Most significant to most employers are those penalties under the laws enforced by the Wage and Hour Division, which include:
- Fair Labor Standards Act;
- Family and Medical Leave Act;
- Migrant and Seasonal Agricultural Worker Protection Act;
- The Immigration and Nationality Act (INA) (regarding the H-2A, D-1 and H-1B visa programs); and
- Employee Polygraph Protection Act (EPPA).
On December 19, the U.S. Department of Labor (DOL) released a new website where, according to the DOL, workers, employers, and government agencies can find information and resources about misclassification of workers as independent contractors.
What prompted the release of the website? According to the DOL, the misclassification of workers as independent contractors continues to be a huge problem in the United States. This new resource is intended to educate employers about the harm misclassification causes by offering “information about how misclassification affects pay, unemployment insurance, safety and health protections, retirement and health benefits, and taxes.” It can also be used as a tool by those employers who use independent contractors to perform a self-audit of their independent contractor relationships.
Take Home for Employers
With the release of these new materials, the message to employers should be clear – the DOL will be continuing to heavily scrutinize independent contractor relationships in the New Year. It is recommended that all employers who use independent contractors review these materials and use those materials to evaluate their independent contractor relationships.
On October 28, 2016, the U.S. Department of Labor (DOL) announced that it has launched the beta version of worker.gov, the DOL’s new website. This new website is intended to give employees “access to information about their rights that responds directly to their challenges” while removing the guesswork for the employee as to which law might apply in the employee’s situation.
According to the DOL, the new website is designed to provide workers access to critical information about their rights . . . in a way that makes sense for them.” Rather than asking employees to identify the violation, the new website asked employees to “answer a few simple questions about their lives and jobs” and then will “guide them to the information they need” without workers needing “to know the name of a single statute or government agency.”
At the present time, the DOL is beta-testing the new website, but even this beta-test sends an important message to employers. The DOL is using technology to enable employees to be more proactive in identifying potential legal violations in their workplace. Employers need to be aware of this new tool and be prepared for a potential increase in claims once employees start using this tool.
With the effective date of the new FLSA Overtime Rule just over two months away, there has been a lot of focus on how best to comply with the new requirements. While compliance with the new rule should definitely be a top priority for all employers, it is important to remember that not all exempt employees are affected by the new rule.
Specifically, the new rule does not affect those employees who are exempt from the FLSA’s minimum-wage and/or overtime provisions.
These employees include:
- Certain “white collar” employees, like
- Salespeople who fall within the “outside salesman” exemption;
- Employees who qualify for the “teaching professional” exemption;
- Employees who are authorized to practice law who are actually practicing law (i.e. practicing lawyers);
- Employees who are authorized to practice medicine or any of its branches who are actually engaged in the relevant practice (i.e. practicing doctors);
- Employees who have a medical degree and are working in a medical internship or residency;
- Employees whose work meets the computer-employee exemption requirements who are paid on an hourly basis at a rate of at least $27.63.
- Retail employees paid under a qualifying commission pay plan (who are already exempt from overtime under the FLSA)
- Any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers (who are already exempt from overtime under the FLSA)
- Employees who fall under the FLSA’s “Motor Carrier Exemption”
Take Away for Employers
When performing your FLSA compliance audit, first consider whether the employees you are auditing are actually affected by the new rule. However, it is recommended that you speak with qualified legal counsel or an HR Professional before making any determination with respect to FLSA exemptions.
The effective date of the Department of Labor’s new overtime rule is under 100 days away. Has your company decided its course of action?
Under the new overtime regulations, which go into effect on December 1st, the minimum salary requirements for exempt status under the FLSA will be changing to the following:
- The minimum salary threshold for the FLSA overtime exemption is increasing from $23,660 per year to $47,476 per year (or $913 per week);
- The total annual compensation requirement for highly compensated employees is increasing to $134,004 annually
For employers in states (like California and New York, to name a few) where the state minimum salary requirement was higher than the old FLSA minimum salary threshold, their current exempt employees will be required to meet the higher FLSA salary requirements in order to keep their exempt status.
It’s not too late to take action to comply with the new regulations. All employers should analyze the current salaries of their exempt workforce and identify those exempt employees who make less than $913 per week in salary. Once the affected employees have been identified, employers should determine the projected cost of maintaining the exemption as opposed to reclassifying the employee to nonexempt.
With the cost analysis completed, employers can determine the course of action that best fits the needs of the company. A company can take one of four potential actions:
- Increase the employee’s salary. Employers can increase the employee’s salary to meet the $913 per week salary threshold. Assuming that the employee in question also meets the duties test (which was unchanged), the employee will then remain exempt from overtime.
- Reclassify the employee and pay overtime. Employers can reclassify affected employees to nonexempt and pay overtime in accordance with state and federal law.
- Reclassify the employee and prohibit employee from working overtime. Employers can reclassify affected employees to nonexempt and prohibit the employees from working unauthorized overtime. If this course of action is taken, employers will be required to monitor time worked by these employees to verify that they do not work overtime. Be aware, though, that any time the employee does work overtime, the employer will be required to pay the overtime rate in accordance with state and federal law.
- Reclassify the employee and adjust the hourly rate of pay to avoid increased costs. Employers can reclassify affected employees to nonexempt and adjust (likely reduce) the hourly rate of pay so that the employee’s annual earnings (hourly plus overtime) remain the same). The potential downside to this course of action is that the employee will likely be unhappy with receiving a lower rate of pay.
Regardless of the course of action chosen by the employer, the employer should implement the change before the December 1, 2016 deadline.
Available guidance materials
the Department of Labor has released the following guidance materials:
In addition, the White House has released the following guidance: