The Department of Labor’s Wage and Hour Division (WHD) has been working for some time on updated regulations related to enforcement of the Fair Labor Standards Act (FLSA). The final version of these new regulations takes effect on May 5.
Some of the changes were “technical revisions,” such as updating any references to the federal minimum wage to reflect the current $7.25 per hour. However, other changes were included that may require you to update your policies or procedures. In addition, the WHD ultimately decided to not implement some proposed changes that had been previously discussed.
The Tip Credit
If any of your workers are “tipped” employees, such as wait staff, you can pay them the standard minimum wage or you can optionally take what’s known as a “tip credit.” Under tip credit rules, you can pay these employees a cash wage lower than the standard minimum wage. The difference between what you pay them and the standard minimum wage will be made up by their tips. If the amount of their tips is not enough to bring their hourly pay above the standard minimum wage for any given workweek, though, you have to make up the difference.
The new rules don’t change the minimum required cash wage for tipped employees from the current $2.13 an hour. Because of the increase in the federal minimum wage, though, they do increase the maximum tip credit you can take, up to $5.12 per hour.
Under the new rules, if you decide to take advantage of the tip you must tell each tipped employee:
- The amount of the direct cash wage you are paying that employee.
- How much you are using as a credit against tips received. This amount cannot exceed the difference between the minimum wage and the actual cash wage paid.
- That the amount of the tip credit you take can’t exceed the amount of tips actually received by the employee.
- That all tips received will be retained by the employee who received them except for any “tip pooling.”
You cannot claim the tip credit until you have furnished all tipped employees with these notifications. While the WHD does not require you to make the notifications in writing, we recommend you do so. A physical document can help prove you’ve met the requirements if there’s ever any question.
Sometimes employees who customarily receive tips will contribute a portion of their tips to a “tip pool.” These tip pools may be used to equalize tip distribution among the wait staff and/or to share tips with other employees, such as hosts/hostesses, barbacks and bussers, who provide services to the customer but don’t generally receive tips directly.
The rules now say it’s OK to require participation in the pool, but you must inform tipped employees of the amount of contribution required. Also, the rules clarify there is no limit on the maximum required contribution, except that the contribution can’t exceed the total amount of tips received.
Youth Opportunity Wage
To encourage employment of young people, the new rules allow you to pay a special “youth opportunity wage” of $4.25 an hour to employees under the age of 20 during the first 90 days of their employment. However, this doesn’t give you carte blanche to substitute these “youth opportunity” workers for older or more expensive employees. The rules are clear: you can’t displace other employees, reduce their hours or cut their wages or benefits in favor of workers eligible for the youth opportunity wage.
Employees Engaged in “Fire Protection Activities”
Under the old rules, employees engaged in “fire protection activities” were exempt from overtime regulations as long as they spent no more than 20% of their time on non-exempt work. The new rules no longer impose this 20% limit. (Note, however, the 20% limit does still apply to law-enforcement personnel.)
Some Proposed Changes Not Implemented
Fluctuating Work Week
The fluctuating work week (FWW) method of overtime calculation is sometimes used when employees work a variable number of hours per week. This method applies to salaried employees who are eligible for overtime pay and may in some cases reduce the employer’s overtime expense.
Under the FWW method, overtime-eligible employees are paid the same salary each week regardless of how many (or how few) hours they work. If they work more than 40 hours in a work week, the salary for that week is divided by the number of hours they actually worked. This is their hourly-equivalent pay for that week. That rate is divided in half, and they receive half-time pay (in addition to their base salary) for each hour over 40 they worked.
A proposed change would have allowed employers to pay bonuses and premiums to FWW employees without invalidating their FWW payment method. However, the WHD ultimately decided they consider such payments “incompatible” with the FWW method. If you have employees who would otherwise be eligible for the FWW method of calculating overtime, it appears you cannot pay them a bonus or non-overtime premium without risking their being ruled ineligible.
If you provide a meal to an employee, the existing rules allow you to apply the reasonable cost of that meal toward the employee’s minimum wage. A proposed rule would have allowed you to take the meal credit even if the employee didn’t actually accept the meal. This proposal was not implemented over concerns religious or dietary restrictions could prevent employees from accepting the offered meal, or that employees would not be provided enough time to eat. So the existing rule stands, and the employee must accept the meal you provide in order for you to take the credit.
Auto Dealership Service Advisors
Current rules allow an exemption from overtime regulations for employees — such as salespersons and mechanics — who sell or service “automobiles, trucks, or farm implements.” However, employees who sell services for cars, trucks and farm implements — such as service advisors, service writers or service salespeople — have traditionally been considered non-exempt. A proposed change would have made these employees exempt. This proposal was rejected, so these employees are still considered overtime-eligible.
Pay for Commuting Time
Finally, there was a proposal to modify the rules to include specific examples illustrating circumstances under which commuting to and from work in an employer-supplied car would be considered compensable time. However, the WHD declined to implement the change, reasoning that the circumstances should be examined on a case-by-case basis rather than decided on the basis of generic examples.
Make Sure You’re In Compliance
It’s important to make sure you’re up to date with the current rules. Violations of wage and hour regulations, even if inadvertent, can prove expensive. We strongly urge you to consult with a qualified employment law advisor to ensure you are in compliance with current FLSA regulations as well as your state’s laws.
Acroprint’s time and attendance solutions, properly installed, configured and used, can help you meet the requirement to maintain accurate employee work time records and to pay proper wages and overtime to eligible employees. Whether you’re looking to get started with time tracking or want to upgrade your capabilities, we offer a variety of solutions — from traditional time recorders to a cutting-edge online time clock — to meet most any business need. Contact us today for more information or to place an order.