Q. I’ve heard there are new Fair Labor Standards Act () regulations coming. When do the final regulations updating the FLSA become effective?
A. In June 2008, the U.S. Department of Labor (DOL) published a proposed rule concerning an array of FLSA issues. On April 5, 2011, the DOL published the final rule in the Federal Register, updating the regulations to conform to FLSA amendments passed in 1974, 1977, 1996, 1997, 1998, 1999, 2000 and 2007.
The regulations became effective on May 5, 2011.
How do the regs affect tipped employees?Q. How do the new change the tip credit?
A. The final rule affects employers that have employees who receive tips. The regulations are now updated to reflect the increase in minimum wage. An employer can pay tipped employees less than the minimum wage as long as that amount and the employee’s tips are equal to or greater than the minimum wage.
The regulations change the maximum tip credit from $4.42 per hour to $5.12 per hour, which corresponds to the federal minimum wage of $7.25 per hour.
In order to take advantage of the tip credit, the regulations provide that an employer must inform its tipped employees in advance of the following:
- The amount of the cash wage that is to be paid to the tipped employee by the employer.
- The additional amount by which the wages of the tipped employee are increased on account of the tip credit claimed by the employer, which amount may not exceed the value of the tips actually received by the employee.
- All tips received by the tipped employee must be retained by the employee except for a valid tip-pooling arrangement limited to employees who customarily and regularly receive tips.
- The tip credit shall not apply to any employee who has not been informed of these requirements in this section.
What about pay for young workers?Q. How do the regulations affect the youth opportunity wage provision?
A. The final rule reflects the youth opportunity wage provision permitted by the FLSA. This provision allows an employer to pay employees who are younger than 20 years old less than the minimum wage during their first 90 consecutive calendar days of employment.
Specifically, an employer may pay those employees a reduced minimum wage of $4.25 per hour.
The rule also establishes that employers cannot displace employees in order to hire workers at this reduced wage. In other words, you can’t hire a young worker for 90 days and then “trade” him in for a new youth. Nor can you fire another employee just so you can replace her with a young employee.
Did the 'fluctuating workweek' change?Q. How do the regulations affect the fluctuating workweek?
A. The FLSA allows employers to compensateusing the fluctuating-workweek method. Under this method, employees receive a fixed salary as straight-time compensation each week for their hours worked and are paid at one-half their regular hourly rate for any overtime hours.
The proposed rule provided that bonuses and premium payments would not invalidate the fluctuating-workweek method, but that such payments must be included in the calculation of the regular rate, unless they are otherwise excluded.
However, the final rule rejected this. Specifically, the final rule states: “While the Department continues to believe that the payment of bonus and premium payments can be beneficial for employees in many other contexts, we have concluded that unless such payments are overtime premiums, they are incompatible with the fluctuating-workweek method of computing overtime under section 778.114.”
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