THE FAIR LABOR STANDARDS ACT AND THE FARE BUSINESS

Lisa F. Harper [email protected] 3340 Peachtree Road, N.E., Suite 250 Atlanta, Georgia 30326 Telephone: (404) 214-1200 Telefacsimile: (404) 214-1201 Website: www.TFHlegal.com

WHAT IS THE FAIR LABOR STANDARDS ACT (“FLSA”) 

Federal law that establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments.

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Some states have their own versions of the FLSA  Georgia has statutory minimum wage

DOL FOCUS ON RESTAURANTS  In 2013, the DOL identified the restaurant industry as a

target of enforcement. 

Specific focus on tipping policies, with emphasis in the tip credit and tip pooling resulting in payment of lower than minimum wage.

FLSA ENFORCEMENT STATISTICS

FLSA RESTAURANT ENFORCEMENT STATISTICS 

OUTLOOK FOR FLSA ENFORCEMENT  The DOL's budget for 2017 includes $277 million for

wage and hour division enforcement 

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Increase of $50 million from FY2016.

New rules effective December 2016 will provide opportunity for scrutiny of application of new AND existing FLSA rules.

WE ARE COVERED UNDER THE FLSA, SO WHAT? 

Damages include:  Back pay for 2 years or 3 years if willful;  “Liquidated damages” which doubles the recovery unless employer can show good faith;  Attorneys’ fees.

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Personal liability for damages;  Employer defined as "any person acting directly or indirectly in the interest of an employer in relation to an employee."

AND THE SCARY LIST GOES ON: 

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Possible criminal prosecution, fine of up to $11,000 (jumping to $12,080 on 8/1/16) for willful violation; and imprisonment for second violation.  intentionally, deliberately, and voluntarily, or with reckless indifference to or disregard for the FLSA's requirements. Possible civil penalties:  $1,100 per person for each violation (jumping to $1,894 on 8/1/16) for repeated or willful violations.

DOES THE FLSA APPLY TO MY RESTAURANT? 

ENTERPRISE COVERAGE Two or more employees engaged in commerce or in the production of goods for commerce; 

● “Annual revenues of $500,000 or more.

WHAT IS COMMERCE FOR ENTERPRISE COVERAGE? 

“Trade, commerce, transportation, transmission, or communication among the several States or between any State and any place outside thereof.” 

Broad coverage:  “where a restaurant uses interstate cooking equipment as an article to perform its commercial activity of serving food, the restaurant is engaged with “materials” that will subject the business to FLSA coverage.”

NO ENTERPRISE COVERAGE, SO NO FLSA RIGHT? WRONG! 

Can be Individual Coverage: 

The FLSA can apply to your employees even if your restaurant is NOT covered itself to:  

Employee who engages in interstate commerce; or Employee who engages in the production of goods for interstate commerce.

WHAT IS INTERSTATE COMMERCE FOR INDIVIDUAL COVERAGE 

DOL says interstate commerce includes:  making out-of-state phone calls;  receiving/sending interstate mail or electronic communications;  ordering or receiving goods from an out-of-state supplier;  handling credit card transactions or performing the accounting or bookkeeping for such activities

FLSA COVERS ALMOST EVERYONE 

DOL estimates that more than 135 million workers in more than 7 million workplaces are protected or “covered” by the FLSA.

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Employees who may not be covered could include:  Employees working for small construction companies  Employees working for small independently owned retail or service businesses

NEW EXEMPT EMPLOYEE COMPENSATION THRESHOLDS 

Std. Exempt

Old Rule $23,660/yr $455/wk

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Highly Comp. Emp.

$100,000

Automatic increase

none

New Rule $47,476/yr $913/wk $134,004

every 3 yrs; start 1/1/20 DOL Estimates 5 Million white collar exempt workers will lose exemption the first year! 

EXEMPT OR NON-EXEMPT EMPLOYEE– WHAT DOES THAT MEAN? 

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Non-Exempt - subject to law under FLSA requiring minimum wage and overtime; traditionally hourly employees Exempt – Paid on salary basis that is subject to threshold salary requirement; not subject to FLSA minimum wage analysis or overtime Dependent on job duties, not on title or whether you pay by salary;

OVERTIME 

Non-exempt employees – must be paid at least minimum wage (certain exceptions) plus overtime for work over 40 hours per week;

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No limit on number of hours worked but Georgia provides for reasonable accommodation for a day of rest on Saturday or Sunday if requested;

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Must pay a non-exempt employee for all time worked – even if overtime violates company policy.

EXEMPTION CATEGORIES UNDER THE FLSA 

Must Meet Minimum Compensation  Today: $23, 660/year; On 12/1/2106: $47,476/yr

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Fit into an FLSA exempt category, e.g.:  Executive Employee  Administrative Employee  Learned Professional Employee  Creative Professional Employee  Computer Professional  Outside Sales Employee

OK, NEW SALARY RULES, NOW WHAT DO WE DO? 

Identify employees who will need to be reclassified and the number of hours generally worked.

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Review job descriptions and actual duties of those to be reclassified and determine if they truly fit in an exempt category.

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If so, determine if raising salary is feasible and analyze the cost-benefit of raising the salary to keep exemption or paying for the overtime and reclassify as non-exempt.

NOW WHAT DO WE DO? CONTINUED 

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Consider effect of raising current salaries upon existing salaried exempt employees currently making over the threshold. Determine if administrative procedures such as timekeeping methods need to changed as a result of reclassification. Review benefits to determine if reclassification affects eligibility and what measures may need to be taken in connection with the same. Review company policies, handbooks, etc. that may need to be changed as a result of reclassification of some types of managers to non-exempt status.

NEW RULES IMPLEMENTATION OPTIONS 

Raise truly exempt employees salaries to threshold;  May pay non-discretionary bonuses or commissions to make up 10% of threshold - paid at least quarterly.

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Change exempt employees under the salary threshold to non-exempt and pay by the hour;

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Keep exempt employees under the salary threshold on current salary for 40 hour week.  Determine hourly rate at current salary and pay overtime for hours worked over 40 in any week.

CONTINUED OPTIONS FOR IMPLEMENTING NEW RULES 

Consider fluctuating work week non-exempt salary:  Hours must fluctuate from week to week.  Pay fixed salary, at least minimum wage rate, regardless of the number of hours worked a week.  No deductions for absences due to personal reasons or sickness or short work weeks.  Employer and employee must have a clear, mutual understanding of how it works.  Employee must receive an overtime premium for hours over 40 equal to one-half of regular rate.

FLUCTUATING WORK WEEK EXAMPLE 

$500 per week non-exempt salary:  45 hour work week = regular rate of pay is $11.11 per hour ($500 ÷ 45 hours).  5 hours overtime at one-half of his regular hourly rate of $11.11(i.e., $5.56) = 27.80.  Total weekly earnings = $527.80.

CONVENTIONAL METHOD COMPARISON TO FLUCTUATING 

$500 per week non-exempt salary: 

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40 hour work week = regular rate of pay is $12.50 per hour ($500 ÷ 40 hours). 5 hours overtime at one and one-half of his regular hourly rate of $12.50 (i.e., $18.75) = 93.75. Total weekly earnings = $593.75

RECORDING TIME FOR UNDER NEW SALARY RULES 

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Formerly exempt employees reclassified as non-exempt employees must start recording time worked. Possibly differentiate method and/or place of timekeeping for previously exempt employees to keep “management” feel. Consider requiring exempt employees to record time also:  Exemption is precarious and might need records later.  Helps track paid time off and absenteeism.

CAN I JUST MAKE MY EMPLOYEES INDEPENDENT CONTRACTORS AND AVOID ALL OF THIS?  

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NO! "An employer may not misclassify its workers as independent contractors in order to avoid paying them required wages under the FLSA," said Thomas Gauza, district director of the US Labor Department Wage and Hour Division in Chicago. Employee is broadly defined under FLSA as one whom you “suffer or permit to work” – expansive definition!

DOL INDEPENDENT CONTRACTOR ANALYSIS  

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Is work integral to business? Do managerial skills affect his/her opportunity for profit and loss? What are the relative investments in facilities/equipment by worker and employer? What is the degree of worker’s skill and initiative? What is the permanency of the worker’s relationship with employer? and What is the nature and degree of control exercised by the employer?

WHAT IF I MISCLASSIFY AS INDEPENDENT CONTRACTOR? 

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Tax ramifications  Payroll and other tax issues; Violations of the Fair Labor Standards Act  Possible minimum wage and overtime recovery Workers Compensation coverage Unemployment insurance coverage Subjection of business to federal and state employment laws that it did not expect.

TIPPED EMPLOYEES 

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Tipped employees as those who “customarily and regularly receive more than $30 per month in tips.” Employers may pay tipped employees $2.13 an hour so long as the employees’ tips are sufficient to bring the hourly wage to at least the minimum wage, currently $7.25. Unless there is a valid tip pooling agreement, all tips belong to the tipped employee.

TIP REPORTING 

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Tipped employees are required to report tips monthly if they earn in excess of $20 in tips.  Inaccurate reporting could cause loss of tip credit. Each employee should submit a “tip report” for each payroll period.  Requiring tipped employees to record the cash tips earned during their shift prior to clocking out helps keep more accurate track of what they’re earning.

IRS EMPLOYEE TIP REPORTING FORM

WHAT IS THE TIP CREDIT 

Allows the employer to use a portion of the employees tips to meet its minimum wage obligation.

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Equal to the difference between the required cash wage (which must be at least $2.13) and the federal minimum wage.

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Maximum tip credit under the FLSA is $5.12 per hour (the minimum wage of $7.25 minus the minimum required cash wage of $2.13).

USE OF TIP CREDIT ● Inform tipped employee about the tip credit before the credit is used (can be oral or written, but advise written); ● Employee’s direct wage and tip credit must at least meet minimum wage; ● Tipped employee to retains all tips, except to the extent the employee participates in a valid tip pooling arrangement. ● Tips combined with the employer’s direct wages of at least $2.13 an hour must equal the minimum hourly wage — $7.25 an hour — else the employer must make up the difference.

OVERTIME AND TIPPED EMPLOYEES 

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Overtime can never be calculated at a rate less than the applicable minimum wage-rate. Overtime calculated as 1.5 regular rate. Tip Credited hourly rate = $7.25 ($2.13 cash wage and a tip credit of $5.12 per hour). Tip Credited overtime hourly rate:  $7.25 x 1.5 = $10.88 - federal tip credit $5.12 = $5.76/hr  NOT - $2.13 x 1.5 = 3.20/hr

CREDIT CARD TIPS 

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Employer can deduct percentage “swipe” fee credit card company charges employer. Deduction may not reduce the employee's wage below the required minimum wage. The charged tip amount due the employee must be paid no later than the regular pay day. Employer cannot wait for reimbursement from the credit card company.

MANDATORY SERVICE CHARGES AND THE DOL 

DOL position  Considered wages, not tips if passed on to the tipped employees. So cannot be used as part of the tips to determine the amount of the tip credit.  Affects overtime pay  any hours worked above 40 in that work week must be paid at an overtime rate of one and a half times the minimum wage plus whatever amount was paid out from mandatory gratuities.

MANDATORY SERVICE CHARGE AND THE IRS 

Prior to 2014, IRS treated mandatory gratuities paid to tipped employees as tips.  As a result, employer did not have to pay payroll taxes on these amounts.

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After Jan. 1, 2014 - IRS now treats the employee’s share of the mandatory gratuity as wages.  Consequently, mandatory gratuity is no subject to payroll taxes.

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Makes mandatory gratuity generally more expensive than a tip.

TIP POOLING 

The collection of tips from directly tipped employees so that they may be redistributed among a larger group of employees.  Can be all tips or a percentage. But must be “customary and reasonable.” DOL generally does not question 15% or less.  Distribution generally based on the level of service or amount of customer contact and hours worked.  Cannot result in employees receiving a subminimum wage and cannot require pooling of portion of tips used as a tip credit.

TIP POOLING CAUTIONS 

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Only tipped employees can participate. Wait staff, bellhops, counter personnel serving customers, server helpers (busboys/girls) and service bartenders are recognized as valid participants. Back of the house staff who don’t regularly engage with customers (e.g. Cooks and janitors), managers and supervisors* cannot participate.

RESULTS OF TIP POOLING VIOLATIONS 

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Employer loses tip credit and must pay the tipped employees the balance of the minimum wage per hour for all hours worked while contributing to the tainted tip pool. Can be assessed liquidated damages (double damages) under FLSA. Some courts allow restitution of improperly pooled tips.

NON-TIP DUTIES AND TIPPED EMPLOYEES 

The tip credit is available only for the hours the employee spends in the tipped position. 

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Can take the tip credit for time spent in duties related or incidental to the tipped occupation, unless employee spends in excess of 20% of percent) performing those. If work exceeds 20% spent in incidental duties, employee must be paid at least minimum wage it.

DUAL ROLES OF TIPPED EMPLOYEES 

If tipped employee performs dual roles (in a tipped capacity and in a non-tipped position): 

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Employer can take the tip credit for time spent in duties related to the tipped occupation so long as the duties are assigned generally to all wait staff and not just to specific employees. Time should be kept separately for non-tipped work that is not incidental to tipped work and is in excess of 20% of the work and at least minimum wage should be paid for that work.

BEWARE OF DEDUCTIONS FROM COMPENSATION 

Deductions for walk-outs, breakage, or cash register shortages that reduce the employee’s wages below the minimum wage are illegal. 

If tipped employee is paid $2.13 per hour in direct (or cash) wages and the employer claims the maximum tip credit of $5.12 per hour, such deductions will always reduce the employee below the minimum wage (even where the employee receives more than $5.12 per hour in tips).

FURTHER PROBLEM DEDUCTIONS FROM COMPENSATION 

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Employers who provide their employees with required meals in lieu of payment of part of their direct wages cannot charge a meal credit more than the actual cost of the meals. Employers may not deduct from the minimum wage employee’s earnings:  the cost of a required uniform (or require the employee to purchase the uniform);  the costs of any items considered primarily for the benefit or convenience of the employer.

COVERED EMPLOYEE FLSA RECORDKEEPING 

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personal information, including employee’s name, home address, occupation, sex, and birth date if under 19 years of age; hour and day when workweek begins; total hours worked each workday and each workweek; total daily or weekly straight-time earnings; regular hourly pay rate for any week when overtime is worked; total overtime pay for the workweek; deductions from or additions to wages; total wages paid each pay period; and date of payment and pay period covered.

FLSA POSTING REQUIREMENT 

Covered employers must post a notice required by the Wage and Hour Division explaining the FLSA in a conspicuous place such as a lunch room or employee lounge area.

Available electronically for downloading and printing at www.dol.gov/oasam/boc/osdbu/sbrefa/poster/matrix.htm 

FURTHER POSSIBLE FUTURE FLSA CHANGES 

Changes to duties under exempt categories; and

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Setting primary duty supporting exemption at a minimum of 50% of work performed (with burden of proof on employer).

THANK YOU FOR YOUR ATTENTION AND INTEREST We hope the information presented is helpful and at least serves to point to topics about which you should be aware. The foregoing information is provided for discussion purposes only and not as legal advice.