Category: Minimum Wage

Tip Credit

New York Eliminates Tip Credit for Most Industries

On January 22, 2020, the New York Department of Labor issued a proposed rule toward eliminating the tip credit for employees in most industries. The rule change follows a report in which the Commissioner of Labor recommended this approach. Governor Cuomo endorsed the report’s findings on December 31, 2019. The new rule will modify the State’s Minimum Wage Order for Miscellaneous Industries and Occupations.

The proposed rule is subject to a 60-day public comment period. However, it appears quite likely the Department of Labor will finalize this rule before the initial June 30, 2020 partial implementation date.

Affected Employees

The New York Minimum Wage Order for Miscellaneous Industries and Occupations covers most industries. Limited exceptions include the hospitality industry (restaurants and hotels), building services, and farmworkers.

This rule change does not affect tipped restaurant or hotel workers. But it does generally encompass the following types of positions where employees commonly receive tips:

  • car wash attendants
  • nail salon workers
  • tow truck drivers
  • dog groomers
  • wedding planners
  • tour guides
  • tennis instructors
  • valet parking attendants
  • hairdressers
  • aesthetician
  • golf instructors
  • door persons

Current Tip Credit Allowance

Employers have historically been able to pay such employees below the standard New York minimum wage by relying on a tip credit allowance. To apply a portion of the employee’s tips or gratuities toward satisfying the hourly minimum wage requirement:

  • The employee’s occupation must be one in which tips have customarily and usually constituted a part of the employee’s remuneration;
  • The employer must be able to show substantial evidence that the employee has earned at least the amount claimed for the tip credit allowance; and
  • Any tip credit allowance must be recorded on a weekly as a separate item in the wage record.

Where currently allowed, the amount of the tip credit available to employers depends on the level of tips earned by a particular employee. In each case, there is a “low” and “high” tip credit allowance based on the employee’s weekly average of tips received.

New Tip Credit Rule

Under the new rule the tip credit allowance under the New York Miscellaneous Industries and Occupations Wage Order would be cut in half effective June 30, 2020, Then, as of December 31, 2020, it would be eliminated. Thus, by year end, employers will have to pay full minimum wage without the benefit of any tip credit.

Commissioner of Labor Investigation and Report

The New York Commissioner of Labor has the authority to declare that a policy must be eliminated as rapidly as practicable without substantially curtailing opportunities for employment or earning power. Governor Andrew Cuomo had directed the Commissioner to examine the overall impact of the minimum wage tip credits on employees and employers.  The Department of Labor held seven public hearings resulting in approximately 40 hours of testimony, and the Commissioner issued an 11-page “New York State Subminimum Wage Hearing Report and Recommendations.”

The Commissioner’s Report addresses the overall intent behind the project, what action was taken by the Commissioner and his team to investigate the overall impact of the tip credit allowance, the data collected during the investigation, and his recommendations for changes moving forward.

Report Findings

The Commissioner’s Report includes the following findings:

  • There are at least 70,000 workers in the state of New York that fall under the Miscellaneous Wage Order who likely receive tips.
  • 62% of these employees are female, 41% are non-white, and 27% are Hispanic or Latino.
  • Tipped workers are twice as likely to be in poverty, with a below-poverty status of 13%–more than two times that of the broader workforce–and are more likely to rely on public assistance.
  • Tipped workers outside of the hospitality industry are often confused about whether they are entitled to earn minimum wage, leading to wage theft.
  • The testimony cited lower tipping rates in miscellaneous industries due to tip pooling and a lack of broad public awareness of tipping in these types of businesses.

Report Conclusions

The Commissioner concluded that the existing tip credit language in the Miscellaneous Industry Minimum Wage Order:

  • allows employers outside of the hospitality industry to employ workers “at wages that are insufficient to provide adequate maintenance for themselves and their families”;
  • threatens the health and well-being of the people of this state; and
  • injures the overall economy.

Minimum Wage for Tipped Employees (Non-Hospitality)

The charts below show the 2020 minimum wage requirements for employees covered by the Miscellaneous Industries Minimum Wage Order.

New York City
Effective DateMinimum WageLow Tips ($2.25 to $3.64)High Tips ($3.65+)
12/31/2019$15.00$12.75$11.05
6/30/2020$15.00$13.85$13.15
12/31/2020$15.00$15.00$15.00

 

Long Island & Westchester County
Effective DateMinimum WageLow Tips ($1.95 to $3.19)High Tips ($3.20+)
12/31/2019$13.00$11.05$9.80
6/30/2020$13.00$12.00$11.40
12/31/2020$14.00$14.00$12.50

 

Remainder of New York State
Effective DateMinimum WageLow Tips ($1.75 to $2.89)High Tips ($2.90+)
12/31/2019$11.80$10.05$8.90
6/30/2020$11.80$10.90$10.35
12/31/2020$12.50$12.50$12.50

In some parts of the State, the minimum wage will increase again on December 31, 2021. On that date, the minimum wage for Long Island and Westchester will rise to $15.00 per hour. Additional increases for other parts of the state are also likely, but not yet scheduled.

Click here for more details on New York State’s minimum wage rates.

Potential Changes to the Hospitality Tip Credit

This rule change does not apply to individuals employed in the hospitality industry. However, it remains possible that restaurants and hotels will face similar changes in the future.

Several years ago, the Labor Commissioner convened a Hospitality Wage Board to investigate modifications to the required cash wage rates and the allowable credits for tips, meals and lodging for employees in the hospitality industry. In February 2015, based on the Wage Board’s recommendations, the Department of Labor modified tip amounts and criteria for all tipped workers in the hospitality industry. These include food service workers and other restaurant and hotel service employees.

The Hospitality Wage Board found that the tipped employee minimum wage adversely affects “especially low-paid employees, women, and minorities.” It recommended “a complete elimination” of the “subminimum wage” in favor of “a single minimum wage [that] would simplify a complicated system.” However, both restaurants/hotels and their employees have expressed opposition to the elimination of the tip credit for hospitality workers.

Recommendations for Employers in Non-Hospitality Industries

Employers (other than restaurants and hotels) currently taking advantage of the tip wage credit must evaluate their current practices and determine how they intend to comply with the planned changes. In some cases, it may not even be clear whether the hospitality or miscellaneous wage order technically applies. Given the complexity of these regulations, it is critical to carefully review and modify your operations and pay practices as necessary.

 

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FLSA Joint Employer

U.S. DOL Revises FLSA Joint Employer Standard

On January 13, 2020, the U.S. Department of Labor issued a new rule revising its test for evaluating joint employer status under the Fair Labor Standards Act. Among other situations, joint employer analysis is often critical to work arrangements involving staffing agencies and other outsourcing companies. The FLSA joint employer rule change takes effect on March 16, 2020.

Previous Joint Employer Test

In 2016, the U.S. Department of Labor under the Obama administration issued interpretative guidance that promoted greater scrutiny of joint business relationships. That guidance essentially created a standard whereby employers jointly employ workers whose work for one company “is not completely disassociated” from their work for the other company. This action prompted many businesses to change their traditional business practices for fear of incurring additional and unwanted liability for another party’s employees.

Despite this change in “guidance,” the DOL had not formally changed its joint employer rule since 1958.

Joint Employer Scenarios

The 2020 joint employer rule identifies two possible scenarios where joint employment could exist:

  1. Where the employee has an employer who employs the employee to work, but another person/entity simultaneously benefits from that work.
  2. Where one employer employs a worker for one set of hours in a workweek, and another employer the same worker for a separate set of hours in the same workweek.

The most significant revisions to the DOL’s standard relate to the first of these situations. The most common example arises when one company places its workers at the jobsite of another independent business to perform services. This could be a temporary placement by a staffing agency or a consulting firm, among other arrangements.

New Joint Employer Test

The primary thrust of the rule change lies in a new four-factor balancing test for evaluating joint employer status in the first type of scenario identified above.

The four factors ask whether the potential joint employer:

  1. Hires or fires the employee?
  2. Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree?
  3. Determine the employee’s rate and method of payment?
  4. Maintains the employee’s employment records?

While emphasizing these four factors, the new rule allows that:

“Additional factors may be relevant for determining joint employer status in this scenario, but only if they are indicia of whether the potential joint employer exercises significant control over the terms and conditions of the employee’s work.”

Irrelevant Factors

The rule also specifically disregards the question of whether the employee is “economically dependent” on the potential joint employer. That subject is now expressly irrelevant to liability under the FLSA.

The DOL identifies the following as factors that assess economic dependence and hence cannot be considered:

  1. Whether the employee is in a specialty job or a job that otherwise requires special skill, initiative, judgment, or foresight;
  2. Whether the employee has the opportunity for profit or loss based on his or her managerial skill;
  3. Whether the employee invests in equipment or materials required for work or the employment of helpers; and
  4. The number of contractual relationships, other than with the employer, that the potential joint employer has entered into to receive similar services.

The full text, with DOL commentary, of the new FLSA joint emlpoyer rule is available here.

Impact of Joint Employer Status

When two companies qualify as joint employers under the FLSA, they both share responsibilities under the law for workers’ wages. These obligations include the requirement to pay proper minimum wage and overtime.

How Will the New FLSA Joint Employer Test Affect Businesses?

In today’s economy, companies commonly outsource certain facets of their business. This trend has increased the number of outsourcing companies in the market that are willing to take on various services. Companies outsource a range of functions, such as information technology, payroll, or even marketing.

Parties who are outsourcing might want to re-evaluate whether they have joint employer status under the new DOL rule. However, the new standards only govern joint employer determinations under the FLSA. Companies must also consider joint employer status under other state and federal laws, including the Occupational Safety and Health Act, the National Labor Relations Act, and Title VII of the Civil Rights Act of 1964. While many federal agencies are moving toward less restrictive joint employer standards, the opposite is true in some states. Many states have their own minimum wage and overtime laws, for example, and some might trigger joint employer liability even where the FLSA, under the new rule, would not.

As a further caution, and beyond possible legal challenges to the validity of the DOL’s new interpretation of FLSA joint employer status, the 2020 rule’s longevity likely depends on the outcome of the next Presidential election. If a Democrat wins the White House, there is a strong possibility that this rule would be among a substantial package of workplace regulations that the next administration would revise once again.

For the above reasons, your company should not overreact to this single development. If potential joint employer liability is material to your operations, the new FLSA rule warrants further evaluation. But again, it would likely not be the only legal parameter affecting your approach to outsourcing and similar business strategies.

Best Practices Regarding Outsourced Staffing Arrangements

Though specific situations might justify alternative allocations of responsibility, here are some standard rules of thumb as a starting point for setting up or maintaining staffing transactions.

Whenever possible, the employer of record should be making all decisions with respect to conditions of employment, pay and method of payment, schedule, disciplinary actions, employee onboarding, and the maintenance of a personnel file. To the extent practical, that entity should also have direction and control over the work being performed. Almost every joint employer test used by government agencies focuses on those components. To reduce potential liability, companies should work together to modify any factors in the business relationship that raise red flags.

Businesses that are linked and jointly (or arguably jointly) employ workers should use this development as an impetus to review current contracts between the parties to make sure their respective responsibilities are in proper alignment. This review should include ensuring that liability and indemnity for claims have been addressed properly and fairly. Doing so can reduce exposure for both companies. You may want to engage the assistance of an attorney with co-employment experience to review the terms of your current contracts or assist with drafting an agreement to be used moving forward.

 

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FLSA Regular Rate

U.S. DOL Clarifies FLSA Regular Rate

For the first time in over 50 years, the U.S. Department of Labor updated its interpretation of “regular rate of pay” under the Fair Labor Standards Act (FLSA). The new DOL rule takes effective January 15, 2020. The changes address new, more complicated perks and benefits. These include wellness plans, fitness classes, nutrition classes, and smoking cessation classes. The new rule will make it less costly for employers to provide additional benefits to employees. This, in turn, may increase workplace morale and employee retention.

The FLSA Regular Rate

The Fair Labor Standards Act is the federal law that establishes minimum wage, overtime pay, recordkeeping, and child labor standards. The FLSA covers most employees in the private sector and federal, state, and local governments.

Under the FLSA, an employee is eligible for minimum wage and overtime unless they qualify for a statutory exemption.

The employer must pay “non-exempt” employees at least minimum wage and compensate them for overtime at a premium rate of 1.5 multiplied by the employee’s “regular rate of pay” for all hours worked over 40 in a “workweek.”

Under current regulations, the “regular rate of pay” includes all remuneration for employment paid to or on behalf of an employee for hours worked, except for specific categories that were excluded under the FLSA. This “regular rate” includes the hourly wages and salaries for non-exempt employees, most bonuses, shift differential pay, on-call pay, and commission payments. The regular rate of pay is generally calculated by adding the employee’s includible compensation each week and dividing it by the number of hours worked within the workweek.

For more details on performing the FLSA regular rate calculation, read Calculating the Overtime ‘Regular Rate’.

New Rule on Regular Rate of Pay

The new rule clarifies that the following perks may be excluded from the calculation of an employee’s regular rate of pay, effective January 15, 2020:

  • The cost of providing parking benefits, wellness programs, onsite specialist treatments, gym access, and fitness classes, employee discount on retail goods and services, certain tuition benefits and adoption assistance;
  • Payment for unused paid leave, including paid sick leave and paid time off;
  • Certain penalties incurred by employees under state and local scheduling leave laws;
  • Business expense reimbursement for items such as cellphone plans, credentialing exam fee, organization membership dues and travel expenses that don’t exceed the maximum travel reimbursement under the Federal Travel Regulation system or the optional IRS substantiation amounts for certain travel expenses;
  • Certain sign-on and longevity bonuses;
  • Complimentary office coffee and snacks;
  • Discretionary bonuses (the DOL noted that the label given to a bonus doesn’t determine whether the bonus is discretionary); and
  • Contributions to benefit plans for accidents, unemployment, legal services, and other events that could cause financial hardship or expense in the future.

The DOL has also expanded the circumstances where employers can exclude call-back pay from the regular rate. Such payments no longer must go into the regular rate unless they are scheduled and prearranged.

Regular Rate Pitfalls

Overtime Must Be Calculated Weekly

Under the FLSA, an employer is responsible for determining the official workweek. Employers have considerable leeway in doing so. However, the workweek must consist of a fixed reoccurring 168 hours that contains seven, 24-hour workdays.  The workweek and workday start and end times must remain consistent unless employees receive advance notice of the changes.

Non-exempt employees must be paid overtime for all hours worked over 40 in a workweek (or as otherwise described by applicable law). Employers may not average the number of work hours worked by an employee over a two-week period, even if the employer has their payroll set up biweekly, to avoid paying overtime. For example, if an employee works 45 hours in week 1 and 35 hours in week 2, the employer may not average the hours worked over the two weeks resulting in a payment of zero overtime hours. Instead, the employee would be due 5 hours of overtime for week 1 and no overtime hours for week 2. Many employers make this mistake that could result in an extensive and expensive audit or litigation.

Employees Can’t Waive Overtime Pay

Non-exempt employees cannot waive their right to receive statutory overtime pay. This is true even for collective bargaining agreements or other written employment contracts.

Private Companies Can’t Use “Comp Time” Instead of Overtime Pay

Companies cannot provide employees with compensatory time (comp time) in exchange for payment for overtime hours worked each week. There are some exceptions to this rule for government workers.

Salaried, Non-Exempt Employees Are Still Eligible for Overtime Pay

An employer could pay a non-exempt employee a weekly salary that will represent pay for all regular hours of work. But if the employee works overtime during the workweek, the employer must pay additional premium compensation above and beyond the weekly salary for each overtime hour worked.

Example: An employee earns a weekly salary of $700 each week and works 43 hours. This employee’s regular rate of pay for this week would be $700/43=$16.28. The extra premium pay owed for the overtime hours can be determined by dividing the regular rate of pay in half. The employee should receive the normal weekly salary of $700, plus (3 hours x premium pay of $8.14) = $724.42.

State Overtime Laws

This new rule relates specifically to the FLSA. Many states have separate minimum wage and overtime laws. Employers often must satisfy both state and federal laws in this area. The “regular rate” concept may differ in some states. Therefore, be sure to consider the laws of your state in addition to the FLSA.

What Employers Should Do Next

Employers should conduct an overall audit to review what they include in their regular rate calculations. Companies using a third-party payroll provider should ask for clarification as to how overtime is calculated each week.

The FLSA is a complex law with many nuances beyond those described here. An experienced employment attorney can evaluate your pay practices and consult with you on overtime compliance. They might be able to identify alternative work schedules or payroll practices that comply with the wage and hour laws.

 

The new FLSA regular rate regulations are available here.