Wage and Hour Division Issues Revised FLSA Regulations
May 10, 2011
Recently, the United States Department of Labor’s Wage and Hour Division (“DOL”) published final revisions to its Fair Labor Standards Act (“FLSA”) regulations. The long-awaited amendments, which became effective on May 5, 2011, are based on a proposed rule originally published in the Federal Register on July 28, 2008. For the most part, the final rule does not impose new requirements on employers, but instead clarifies existing rules and changes outdated information.
Some of the more noteworthy amendments relate to “tipped” employees. Specifically, the final rule clarifies that: (1) tips are the property of the employee, whether or not the employer has taken a tip-credit; (2) the employer is prohibited from using an employee’s tips for any reason other than a tip-credit or a valid tip pool; and (3) prior to utilizing the tip-credit, the employer must inform its tipped employees of the tip-credit requirements contained in section 3(m) of the FLSA. The final rule also clarifies that a valid tip pooling arrangement may only include those employees who customarily and regularly receive tips, even if the employer takes no tip-credit and instead pays the tipped employee the full minimum wage. The amendments further state that while the FLSA does not impose a maximum contribution percentage on mandatory tip pools, an employer must notify its employees of any required tip pool contribution amount and may only take the tip-credit for the amount of tips each employee ultimately receives.
The final rule also revises the overtime regulations to exclude stock options from the computation of the regular rate of pay. This change reflects the amendments to the FLSA made by the Worker Economic Opportunity Act of 2000. The regulations also reflect provisions of the Small Business Job Protection Act of 1996, by permitting employers to pay an hourly “youth opportunity” wage of $4.25 per hour to employees under the age of 20 during the first 90 consecutive calendar days of their employment. The revised regulation, like the statutory language on which it is based, explicitly prohibits employers from displacing employees or reducing hours in order to hire workers at the youth opportunity wage rate.
The regulatory package is also noteworthy for the proposals rejected by the DOL, including a proposed change which would have made the fluctuating workweek method of calculating overtime compatible with the payment of bonuses and premiums; a proposal allowing employers to apply a meal credit toward an employee’s minimum wage, even where the meal was not actually accepted; and a provision clarifying whether and how service advisers working for dealerships can qualify for an exemption under the FLSA. The DOL also declined to include specific examples clarifying an employer’s obligation to compensate employees for time spent commuting to and from work in an employer-supplied vehicle.
