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Tip Credits Leaving New York State

Tip Credits Leaving New York?

On December 17, 2017, Governor Andrew Cuomo directed New York’s Commissioner of Labor to schedule public hearings to evaluate the possibility of ending minimum wage tip credits in the State.

Tip credits permit employers to satisfy part of an employee’s minimum wage entitlement through tips earned, rather than cash wages paid by the employer.

Several states (Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington) have long prohibited employers from using tips received by employees as a credit against their state minimum wages.

Cuomo’s Take on Tip Credits

Governor Cuomo’s announcement strongly suggests a belief that New York should eliminate tip credits.

“At the end of day, this is a question of basic fairness. In New York, we believe in a fair day’s pay for a fair day’s work and that all workers deserve to be treated with dignity and respect,” Governor Cuomo said. “There should be no exception to that fairness and decency. I have directed the Department of Labor to ensure that no workers are more susceptible to exploitation because they rely on tips to survive. I look forward to reviewing the findings of these hearings.”

The press release from the Governor’s office offered that more than 70% of all tipped workers in New York are women. It cited a 2014 study by the Restaurant Opportunities Center asserting that “Workers in states that require the full minimum wage be paid to tipped employees experience half the rate of sexual harassment compared to workers in states that pay lower wages to tipped employees.” The Governor’s release also indicated that “studies have shown that African-American workers are often tipped less than their white counterparts.”

New York Hearings on Tip Credits

New York Commissioner of Labor Roberta Reardon has released a schedule of seven “Hearings on Subminimum Wage” throughout the State. The first one will take place March 12, 2018 in Syracuse. The others will be in Buffalo, Long Island, Watertown, Albany, and New York City.

According to the DOL’s website:

Oral presentations may be strictly limited to 3 minutes each. Priority in seating and speaking will be given to those who preregistered. Seating and speaking order for those who do not preregister will be handled on a first-come, first-served basis as determined by event staff. Written testimony must be submitted to: hearing@labor.ny.gov before July 1, 2018.

Click here for the full hearing schedule.

At the Federal Level

Meanwhile, the U.S. Department of Labor is planning to rescind Obama-era restrictions on employers that pay a direct cash wage of at least the full federal minimum wage and do not claim a tip credit against their minimum wage obligations. The agency published a Notice of Proposed Rulemaking on December 5, 2017, seeking to amend the 2011 rule. The already controversial topic has escalated recently upon reports that the U.S. DOL did not make public its economic analysis regarding the proposed changes to the tip pool rules. On February 5, 2018, the Office of Inspector General of the U.S. DOL initiated an audit of this rulemaking process.

The federal rule change would permit back-of-the-house workers to share in the pooled tips of employees who interact directly with customers. Critics oppose the measure in that it might reduce employee compensation by allowing management to personally participate in tip pools.

At least within the hospitality industry (restaurants and hotels), New York has its own rules regarding tip pooling. In most cases, those requirements would likely make the proposed change to the federal rules irrelevant in New York. Most employers must abide both the state and federal regulations. And it does not appear that the New York tip pooling rules are under reconsideration at this time.

Potential Impact on New York Employers

New York employers who currently rely on tip credits to satisfy a portion of the State’s minimum wage should anticipate paying a higher percentage (perhaps 100%) of the minimum wage in cash by the end of 2018. The State might impose separate rules for those in the hospitality industry and others where employees regularly receive tips.

Losing tip credits may force employers to adjust their prices or other components of their business models. For example, some employers have announced express “no tipping” policies. This allows them to increase what they charge customers without increasing the customers’ overall cost. Employers can then use the additional revenues to pay the minimum wages.

Click here for more information on the current New York minimum wages for both tipped and non-tipped employees.

FLSA Regular Rate of Pay

Calculating the Overtime “Regular Rate”

The Fair Labor Standards Act requires employers to pay non-exempt employees overtime if they work enough hours (usually over 40/week). Overtime must be paid at one-and-a-half times the employee’s “regular rate” of pay. Unfortunately, it’s not always so easy to calculate the employee’s regular rate.

Here we’ll look at some of the most common regular rate calculation issues. This article focuses on the federal FLSA. State overtime requirements often borrow the same overtime calculation rules, but state requirements may vary.

Defining the “Regular Rate” of Pay

The FLSA’s statutory definition of “regular rate” is almost as long as this blog post. The first few words define “regular rate” to include “all remuneration paid” to the employee. However, the next several hundred words identify exclusions.

More briefly stated than in the statute itself, these exclusions include certain:

  • sums paid as gifts;
  • payments made for occasional periods when no work is performed;
  • reimbursements for traveling expenses;
  • discretionary bonuses;
  • profit sharing;
  • payments made for employee benefits;
  • additional compensation for hours worked beyond a specified number in a day/week or outside the normal workday/week;
  • premium compensation for work on weekends or holidays; and
  • income derived from qualifying stock transactions.

Many of the items below are more nuanced than described here. So, don’t automatically exclude a payment just because it looks like it might fit on this list.

Significantly, the “regular rate” is an hourly rate. It’s always an hourly rate, even for employees who aren’t paid hourly. Many non-hourly employees are exempt, so it’s not necessary to calculate their regular rate. But some salaried employees are eligible for overtime. And some hourly employees also receive compensation beyond their base pay that counts toward their regular rate for overtime purpose.

When the Regular Rate Differs from the Base Hourly Rate

If a non-exempt employee receives any compensation other than their base hourly rate, the employer must consider what else to include in the regular rate when calculating overtime.

The regular hourly rate of pay of an employee is determined by dividing their total remuneration for employment (except statutory exclusions) in any workweek by the total number of hours actually worked in that workweek.

Let’s look at how this work in several common situations.

Salaried Employees

If an employee’s only form of compensation is a fixed salary per week, then you compute the regular rate by dividing the salary by the number of hours that the employer reasonably intends the salary to compensate. So, if the employee is paid $800 per week to work 40 hours, the regular rate is $20 per hour. If that employee works 50 hours in a given week, then they would need to receive total pay of $1100 [$800 base salary for the first 40 hours and $300 ($20 x 1.5 x 10 hours) for the overtime].

Hourly Wage Plus Commissions

Some hourly employees are eligible to receive commissions or incentive bonuses based on a percentage of sales or another fixed formula. This additional compensation factors into the employee’s regular rate for overtime calculations.

The calculation may be relatively straightforward where commissions are paid weekly. Then you just divide the commissions for the week by the number of hours worked in the week and add it to the base hourly rate earned in the week to determine the overtime regular rate. Take for example a non-exempt employee who works 45 hours with a $10/hour base rate. The employee also earns $90 in commissions in a given week. Their regular rate in that workweek is $12 [the $10 base rate plus $2 ($90 in commissions / 45 hours worked)]. Their total compensation for the week, including overtime, must be $550 [$400 ($10 x 40 hours regular time wage) + $90 (base commissions) + $60 (5 overtime hours x $12 regular rate)].

If, however, commissions are not earned and paid weekly, the calculation becomes more complicated. If the amount of commissions earned cannot be determined until after the regular pay day for the workweek in which the employee performed the work that results in the commissions, then the commissions don’t have to be included in the regular rate and paid as overtime on that payday. But, once determined, the commissions will eventually affect the regular rate, and may require additional overtime calculations and payments. The U.S. Department of Labor has specific rules for calculating the regular rate and allocating the commissions over earlier workweeks in order to fully compensate the employee for overtime earned.

Employees Working at Two or More Rates

Sometimes employees receive different rates of pay depending on what jobs or tasks they perform. By default, the regular rate is then determined by taking the weighted average of the separate rates earned. This means that the regular rate of an employee who spends 30 hours working for $15 and 20 hours working for $10 would be $13 per hour ($450 + $200 / 50). So the employee’s total compensation would be $715 [$450 + $200 + $65 (the half-time portion of the 10 overtime hours, since the regular time portion is already included here)].

An employer may, however, have the option of instead paying overtime calculated at 1.5 times the rate for the specific work performed during the overtime hours. Using the previous example, if the employee had worked all of the overtime in the job that pays $10 per hour base, then the regular rate for the overtime could be just the $10, rather than the weighted average weight. But the employee would have to apply this approach consistently, such that if the employee’s overtime (i.e., the last hours worked in the week beyond 40) were in the higher paying job, then the regular rate would be $15 rather than $10. For the employer to use this approach, the employee must know of and be willing to work under this overtime structure before beginning the work.

The second method might be disallowed if an employer uses it to systematically reduce an employee’s overtime pay. This might be case where the employer always requires the employee to perform the lower-rate work at the end of the week. Then the employer may need to revert to the weighted average method.

Many More Regular Rate Scenarios Exist

These are just some of the most common methods for determining regular rate of pay for FLSA overtime purposes. The U.S. Department of Labor has permitted various other exceptions and approaches, either based on direct statutory instructions or as enforcement practicalities. Employers facing non-routine overtime issues should confer with experienced legal counsel. Mistakes in overtime calculations can lead to significant underpayment liability for employers, including liquidated damages and potentially attorneys’ fees.

EEOC Discrimination Charges in 2017

EEOC Discrimination Charges in 2017

On January 25, 2018, the U.S. Equal Employment Opportunity Commission released its Fiscal Year 2017 Enforcement and Litigation Data. The agency reports that it resolved 99,109 EEOC discrimination charges in the year ending September 30, 2017. The EEOC had a remaining charge workload of 61,621, the lowest year-end level in 10 years.

Among other raw statistics of note, the EEOC received over 540,000 calls and 155,000+ inquiries in its field offices.

The EEOC recovered nearly $400 million on behalf of victims of alleged discrimination.

Bases of EEOC Discrimination Charges

In FY 2017, retaliation was the most common grounds for EEOC discrimination charges. Nearly 50% of all charges included an allegation of retaliation (48.8%).

Three protected characteristics each appeared in nearly one-third of all FY 2017 EEOC discrimination charges: race (33.9%), disability (31.9%), and sex (30.4%). Age discrimination was the next most prevalent allegation, appearing in 21.8% of charges.

Five other categories protected by laws that the EEOC enforces each appeared in less than 10% of the charges:

  • National Origin – 9.8%
  • Religion – 4.1%
  • Color – 3.8%
  • Equal Pay Act – 1.2%
  • Genetic Information – 0.2%

Sexual Harassment Charges

Sexual harassment is only one subset of the 25,605 sex discrimination charges that the EEOC received in FY 2017. Most cases were claims of disparate treatment (favoring one sex over the other), such as regarding employment, promotion, or compensation.

The EEOC received 6,696 charges alleging sexual harassment. It obtained $46.3 million on behalf of sexual harassment victims.

Perhaps surprising given recent media attention, the number of charges alleging sexual harassment declined in FY 2017. They have steadily gone down over the past decade. But the Harvey Weinstein report (followed by others) did not break until the end of the last EEOC fiscal year. So, it will be interested to revisit this statistic next year.

Other Trends in EEOC Discrimination Charges

The EEOC received fewer charges in FY 2017 (84,254) than it had in any year since FY 2007 (82,792). Last year’s total was down 7.9% from FY 2016.

The number of charges alleging discrimination based on race, sex, national origin, religion, age, and genetic information all reached the lowest levels in at least 5, and in several cases 10+, years.

On the other hand, EEOC charges alleging discrimination based on color reached a 20-year high. Retaliation claims reached their highest proportion of total claims during that same period, continuing a steady upward trend. Disability claims also continued to increase as a percentage of total EEOC discrimination charges.

Geographic Origin of EEOC Cases

Employees of all states may file discrimination charges with the EEOC. In many states, employees also have the option of filing with a state agency that investigates claims under state employment discrimination laws. The varying procedures and substantive grounds for claims under respective state laws may affect the frequency of EEOC cases in a state. The EEOC’s reported statistics do not include charges filed with state or local Fair Employment Practices Agencies.

In FY 2017, 10.5% of all EEOC discrimination charges were filed in Texas. Florida had the second most charges at 8.1%. California was third with 6.4% of charges. These are the also the three most populous states (though California has by far the most residents).

Despite being the fourth largest state by population, New York only accounted for the 8th most EEOC discrimination charges (4.4%). In part, this may be because many employees pursue their claims under the New York State or New York City Human Rights Laws instead of federal law.

EEOC Litigation

Though it has litigation authority, the EEOC does not go to court over many of the charges it receives. The agency filed 184 discrimination lawsuits in FY 2017. This included 124 cases alleging discrimination against an individual, 30 cases involving multiple victims or discriminatory policies, and 30 systemic discrimination cases. The EEOC reports a “successful outcome” in 90.8% of its resolved cases. The agency ended the year with 242 active court cases.

How to Avoid or Prepare for EEOC Discrimination Charges

Employers who learn of possible discrimination, including harassment, must act promptly. This usually involves investigating the circumstances and taking remedial action where warranted.

Click here to download my free Guide to Investigating Workplace Harassment Complaints.