Category: Minimum Wage

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.

2020 New York Minimum Wage

2020 New York Minimum Wage

Do you know the 2020 New York minimum wage? Employers must be ready before the end of the year to meet the new requirements.

The 2020 New York minimum wage rates are shaded in blue in the tables below. Note that the changes take effect on the last day of the year, not January 1st.

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Standard New York Minimum Wage

The 2020 New York minimum wage varies by geographic location, employer size (where applicable), and sometimes by industry.

For most private employers, the 2019 New York minimum wage in the following chart applies. This chart also applies for non-teaching employees of public school districts or a BOCES. However, there is no New York minimum wage for other employees of public (governmental) employers (but the federal minimum wage of $7.25 does apply).

General Minimum Wage Rate Schedule
Location 12/31/18 12/31/19 12/31/20 12/31/21
NYC – Large Employers (of 11 or more) $15.00 $15.00
NYC – Small Employers (10 or less) $13.50 $15.00
Long Island & Westchester $12.00 $13.00 $14.00 $15.00
Remainder of New York State $11.10 $11.80 $12.50 TBD*

* Annual increases for the rest of the state will continue until the rate reaches a $15 minimum wage. Starting in 2021, the annual increases will be published by the Commissioner of Labor by October 1. They will be based on percentage increases determined by the Director of the Division of Budget, based on economic indices, including the Consumer Price Index.

Minimum Wage for Tipped Employees in the Hospitality Industry

New York State has separate minimum wage rules for employees in the hospitality industry. These rules apply to businesses running a restaurant or hotel.

The minimum wage rates for most non-tipped employees in the hospitality industry are set as per the schedule above. However, employers may count a portion of certain tipped employees’ gratuities toward the minimum wage requirements. This is known as a “tip credit.”

New York State has two separate cash wage and tip credit schedules for tipped hospitality employees who qualify as “food service workers” and “service employees.”

Food Service Workers

A food service worker is any employee who is primarily engaged in serving food or beverages to guests, patrons, or customers in the hospitality industry who regularly receive tips. This includes wait staff, bartenders, captains, and busing personnel. It does not include delivery workers.

Hospitality Industry Tipped Minimum Wage Rate Schedule (Food Service Workers)
Location 12/31/18 12/31/19 12/31/20 12/31/21
NYC – Large Employers
(of 11 or more)		 $10.00 Cash

$5.00 Tip

 $10.00 Cash

$5.00 Tip
NYC – Small Employers
(10 or less)		 $9.00 Cash

$4.50 Tip

 $10.00 Cash

$5.00 Tip
Long Island & Westchester $8.00 Cash

$4.00 Tip

 $8.65 Cash

$4.35 Tip

 $9.35 Cash

$4.65 Tip

 $10.00 Cash

$5.00 Tip
Remainder of New York State $7.50 Cash

$3.60 Tip

 $7.85 Cash

$3.95 Tip

 $8.35 Cash

$4.15 Tip

Service Employees

The next schedule applies to other service employees. A service employee is one who is not a food service worker or fast food employee who customarily receives tips above an applicable tip threshold (which also follows schedules, not shown here).

Hospitality Industry Tipped Minimum Wage Rate Schedule (Service Employees)
Location 12/31/18 12/31/19 12/31/20 12/31/21
NYC – Large Employers
(of 11 or more)		 $12.50 Cash

$2.50 Tip

 $12.50 Cash

$2.50 Tip
NYC – Small Employers
(10 or less)		 $11.25 Cash

$2.25 Tip

 $12.50 Cash

$2.50 Tip
Long Island & Westchester $10.00 Cash

$2.00 Tip

 $10.85 Cash

$2.15 Tip

 $11.65 Cash

$2.35 Tip

 $12.50 Cash

$2.50 Tip
Remainder of New York State $9.25 Cash

$1.85 Tip

 $9.85 Cash

$1.95 Tip

 $10.40 Cash

$2.10 Tip

Fast Food Minimum Wage

Non-exempt employees at some “fast food” restaurants are subject to an alternative minimum wage schedule.

This schedule applies to employees who work in covered fast food restaurants whose job duties include at least one of the following: customer service, cooking, food or drink preparation, delivery, security, stocking supplies or equipment, cleaning, or routine maintenance.

These special New York minimum wage rates only apply to fast food restaurants that are part of a chain with at least 30 restaurants nationally.

Fast Food Minimum Wage Rate Schedule
Location 12/31/18 12/31/19 12/31/20 7/1/2021
New York City $15.00  $15.00
Outside of New York City $12.75 $13.75  $14.50  $15.00

Note: No tip credit is available for fast food employees.

Overtime Threshold

Along with increases to the 2019 New York minimum wage, the salary requirement to maintain some overtime exemptions will also increase.

The salary threshold for New York’s executive and administrative exemptions go up on December 31st. These amounts are all higher than the federal Fair Labor Standards Act (FLSA) threshold, which will increase from $455/week to $684/week on January 1, 2020. But most New York employers (other than governmental entities) must satisfy the higher New York threshold to ensure full overtime exemption.

There is no salary requirement for New York’s professional exemption. But employers must also satisfy the FLSA threshold for most professional employees. Doctors, lawyers, and teachers do not have a salary requirement for exemption.

Executive & Administrative Exemption Weekly Salary Threshold Schedule
Location 12/31/18 12/31/19 12/31/20 12/31/21
NYC – Large Employers (of 11 or more) $1,125.00 $1,125.00
NYC – Small Employers (10 or less) $1,012.50 $1,125.00
Long Island & Westchester $900.00 $975.00 $1,050.00 $1,125.00
Remainder of New York State $832.00 $885.00 $937.50 TBD*

Prepare Now for the 2020 New York Minimum Wage

New York employers should review their compensation levels and make necessary changes by December 31, 2019. This might result in increasing an employee’s hourly wage or salary or reclassifying exempt employees to non-exempt if they will no longer meet the exemption salary requirement.

And, remember, the 2020 New York minimum wage rates only last one year in many cases. Companies will have to review this again next year.

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Salary Basis

Salary Basis for FLSA Overtime Exemptions

Several common FLSA overtime exemptions require that employees be paid on a salary basis. A salary usually refers to a fixed amount of compensation that an employee receives regularly. But, for FLSA purposes, paying employees on a salary basis is more complicated than just that.

Minimum Wage & Overtime Exemptions

The FLSA is a federal law that covers most employers in the United States. It generally requires them to pay employees a minimum wage and overtime for working over 40 hours in a week. The law allows various exemptions from these standard requirements. The most widely applicable are often referred to as “white collar exemptions”. (They primarily apply to employees who perform little manual labor.) These include the executive, administrative, professional, and outside sales exemptions.

Employers do not have to pay overtime to employees who qualify for these exemptions. (They are also technically exempt from minimum wage, though their compensation typically exceeds that level anyway.)

The executive, administrative, and professional exemptions require that the employee is paid on a salary or fee basis of at least $455 per week. There is no salary requirement for the outside sales exemption.

Many states have similar minimum wage and overtime laws and exemptions. Some of these have higher salary requirements for exemption. Employers usually must satisfy both state and federal overtime requirements.

Salary Basis Requirement

“Salary Basis” compensation means the employee receives a predetermined amount of pay each pay period on a weekly or less frequent basis. That part is relatively straightforward.

The complexity lies in the further detail that the predetermined amount cannot be reduced based on the quality or quantity of the employee’s work. Improper salary reductions can destroy an exemption. That can open up the employer to substantial liability for unpaid overtime.

Permissible Deductions

Generally, an exempt employee must receive their full salary for any week in which they work at all. Conversely, if an exempt employee does not work at all in a week, then no payment is required under the FLSA.

There are also a few limited situations where missing time during a week can warrant a lawful pay reduction without jeopardizing the salary basis requirement:

1. First and Last Weeks of Employment

An exempt employee who starts their job after the first day/hour of a workweek can receive a pro-rated salary payment for that week.

The same applies to an employee who ends employment before the last day/hour of a workweek.

2. Absence for Personal Reasons Other than Sickness or Disability

If an exempt employee voluntarily takes one or more full days off for personal reasons, then their employer could dock their pay for the day(s) without undermining their FLSA exemption. No pay reduction is permissible, however, for partial day personal leave.

3. Absence for Sickness or Disability

Employers may also reduce an exempt employee’s pay for full-day absences due to sickness or disability. But, the pay reduction must be consistent with a bona fide plan, policy, or practice of providing compensation for salary lost due to illness.

If the employer does not have a sick leave policy, then making pay deductions for sickness or disability, even in full-day increments, will interfere with the salary basis component of applicable FLSA exemptions.

However, when an exempt employee is eligible for paid sick leave but exhausts available leave time, then their employer may reduce their salary for full-day absences due to additional sick days.

Employers may likewise pay only a pro-rated salary in weeks where an employee receives workers’ compensation or disability insurance benefits for days they are not working.

4. Unpaid FMLA Leave

When employees are eligible to take time off under the Family and Medical Leave Act (FMLA), the law only guarantees unpaid leave. Accordingly, employers may reduce salaried exempt employees’ pay for time off under the FMLA.

FMLA leave can sometimes be taken for only part of a workday. In those cases, employers could make pay deductions in less than full-day increments.

5. Offsetting Jury or Witness Fees or Military Pay

Employees who are off of work to serve on a jury, testify as a witness, or serve in the military might receive alternative compensation to do so. In these cases, the employer does not have to maintain the full salary over the periods of these absences, even if only for part of a day.

6. Penalties for Infractions of Safety Rules of Major Significance

Employers may reduce salaried employees’ pay for certain safety violations. According to FLSA regulations:

“Safety rules of major significance include those relating to the prevention of serious danger in the workplace or to other employees, such as rules prohibiting smoking in explosive plants, oil refineries and coal mines.”

7. Disciplinary Suspensions for Workplace Conduct Rule Infractions

If an employer suspends an exempt employee for violating a written policy that applies to all employees, then they may deduct pay for full days that the employee does not work. This allows the employer to implement an unpaid suspension.

Consequences of Improper Salary Deductions

An employer that makes impermissible deductions from an exempt employee’s salary may lose the exemption not only for that employee, but perhaps for all employees in the same job classification.

However, isolated or inadvertent deductions will not destroy the exemptions as long as the employer reimburses the employees for all improper deductions.

There is a “safe harbor” protection available to employers that:

(1) have a clearly communicated policy prohibiting improper deductions and including a complaint mechanism;

(2) reimburse employees for any improper deductions; and

(3) make a good faith commitment to comply in the future,

An employer that satisfies the safe harbor parameters will not lose exemptions improper deductions unless it willfully continues to make improper deductions after receiving employee complaints.

Review Your Pay Practices

Employers who are uncertain about their full compliance with these rules should promptly review their exempt employee pay practices. The penalties for losing exemptions can be costly if employees subsequently seek overtime compensation.

Keep in mind that state wage and hour laws might have different exemptions or construe them differently. Employers covered by both state and federal overtime laws must comply with both. Many states apply similar salary basis concepts, but some situations might necessitate alternative or additional analysis.