Fair Labor Standards Act (FLSA) Update

My in-house editor is out-of-the-house for a few days, so this blog post comes with a warning: Grammar and spelling may be incorrect.

On April 5, 2011, the DOL issued the publication titled: Updating Regulations Issued Under the Fair Labor Standards Act; Final Rule. (sometimes referred to as the Update)

Many of the changes are based on statutory amendments to the FLSA over the past few years. A good example is the The U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, which included an amendment to the FLSA that increased the applicable Federal minimum wage over the course of three years, bringing it to the current rate of $7.25.

There were a few changes which were not merely a formality. This post focuses on the Fluctuating Work Week and Tip Wage Credit provisions of the FLSA.

Fluctuating Work Week:

Fluctuating Work Week, which is known to some as Salaried Non-Exempt, is based upon the employee receiving a set salary per week, regardless of the total number of hours worked. If the employee works less than 40 hours, they get their straight salary. If the employee works over 40 hours, then the total hours worked is divided by the total salary to determine the hourly rate. The overtime rate is then calculated as .5x the hourly rate and paid on all hours over 40.

The DOL did not implement proposed changes which would have made it clear that an employee may be paid bonuses or other non-overtime premiums without invalidating the fluctuating workweek pay method.

The DOL received many opinions from both sides of the argument. In the end, the DOL felt that:

"unless such payments are overtime premiums, they are incompatible with the fluctuating workweek method of computing overtime under section 778.114. As several commenters noted, the proposed regulation could have had the unintended effect of permitting employers to pay a greatly reduced fixed salary and shift a large portion of employees' compensation into bonus and premium payments, potentially resulting in wide disparities in employees' weekly pay depending on the particular hours worked."

(http://edocket.access.gpo.gov/2011/2011-6749.htm)

So, in short - there is no change here, but it is interesting to note that the DOL recognizes the difference in salaried exempt and salaried non-exempt payments, and is striving to ensure the the non-exempt employees are ensured a relatively consistent method of payment.

Tip Credit:

For those employers taking advantage of the Tip Wage Credit, which allows an employer to pay below the standard minimum wage, the Update provides that the employer must inform an employee of the tip credit provisions or explain how the provisions work in order to take advantage of the credit. The Update indicates that the notice does not need to be in writing.

I want to stress that employers are well served by providing this information in writing and having the employees sign as having received the information. You will recall the three edicts of HR, Fair Treatment, Consistency, and Documentation.

In order to use the tip credit, the employer must inform the tipped employee of the following items PRIOR to utilizing the tip credit:

(1) The direct cash wage the employer is paying a tipped employee, which can
be more than, but cannot be less than, $2.13 per hour;

(2) the additional amount the employer is using as a credit against tips received, which cannot exceed the difference between the minimum wage specified in section 6(a)(1) of the FLSA and the actual cash wage paid by the employer to the employee;

(3) that the additional amount claimed by the employer on account of tips as the tip credit may not exceed the value of the tips actually received by the employee;

(4) that the tip credit shall not apply with respect to any tipped employee unless the employee has been informed of the tip credit provisions of section 3(m) of the Act; and

(5) that all tips received by the tipped employee must be retained by the employee except for the pooling of tips among employees who customarily and regularly receive tips. Furthermore, the current FLSA recordkeeping regulation, at 29 CFR 516.28(a)(3), expressly requires that the amount per hour that the employer takes as a tip credit shall be reported to the employee in writing each time it is changed from the amount per hour taken in the preceding week.

(http://edocket.access.gpo.gov/2011/2011-6749.htm)

Employers utilizing the tip credit (I am looking at you, Restaurant Industry) should be aware of the new requirements and ensure they are abiding by it in order to take advantage of the credit.

While not required by law, documentation of compliance is key to being able to defend your actions.

Other Topics:

Employee Commuting:

In short - commuting that occurs before the first principle workday activity or after the last principle activity in the workday is excluded from regular time, even if the employee utilizes an employer's vehicle (provided the use of the vehicle is subject to an agreement).

Meal Credit:

A proposed rule allowing employers requiring employees to accept a meal provided by the employer as a condition of employment and to take credit for no more than the actual cost of the meal, even if the acceptance is not voluntary, was not included in the Update.

The DOL determined that it needed further study regarding the extent to which dietary and religious restrictions impacted employees decision to consume the meal as well as whether or not adequate time is allowed for the employee to eat. While not weighing in this time, the DOL has not ruled out future guidance on the matter.

Compensatory Time:

The short and sweet is that the DOL states that public employers must grant compensatory time on the specific date requested by the employee, unless doing so would unduly disrupt the agency.

Given that this relates to public agencies, it is probably not all that interesting to most of you.


Works Cited:

http://edocket.access.gpo.gov/2011/2011-6749.htm