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DOL updates FLSA regs to reflect current law

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in Compensation and Benefits

Congress has amended the Fair Labor Standards Act (FLSA) many times. Courts have chimed in with their interpretations of the law, as well. The Department of Labor, on the other hand, hasn’t been as quick to amend the FLSA regulations.

Final regulations, effective May 5, 2011, now clarify and conform the regs to the current law. While most of the changes the final regs make are technical, employers that pay based on the fluctuating workweek method and employers that take the tip credit are specifically affected. (76 F.R. 18831, 4-5-11)

Portal-to-Portal Act

In 1996, the Portal Act was amended to exclude from the definition of working time the time employees spend commuting in their employers’ vehicles, and the time they spend at the start or end of a workday performing activities incidental to using those vehicles (e.g., obtaining the next day’s work assignments, reporting work done that day). The final regs incorporate this amendment.

Careful: The regs also carry over, without defining, the limitations on this no-pay commuting rule—that the travel must be within the normal commuting area for the employer’s business and that the parties agree to this arrangement.

Fluctuating workweek arrangements

Under the fluctuating workweek method, salaried nonexempt employees who routinely work irregular hours receive a straight-time salary for all hours worked during a week. Overtime is then paid at one-half their regular rates for all hours worked over 40 in the week. There are two main drawbacks to this plan:

  1. Pay deductions can’t be made if employees work fewer than 40 hours in a week (e.g., they can’t be subject to an unpaid suspension)
  2. The more overtime hours they work, the lower their regular rates.

The final regs prohibit employers from paying bonuses or premiums (e.g., night-shift premiums) to employees who are paid based on this method. Exception: Overtime premiums may continue to be paid. The regs restate all the current requirements that apply to this payment method:

  • It applies only to employees who truly work irregular hours.
  • There is a clear, mutual understanding between the parties of how it works.
  • Employees’ salaries can’t be reduced to below the minimum wage.
  • Their overtime rate can’t be less than one-half their regular rates.

Tip credit

The final regs reflect recent legislative changes made to the tip credit. In addition, the regs increase the level of detail of the notice employers must provide to tipped employees. The notice need not be in writing, but written notice is proof that employers have met their obligations. The notice must:

  • Specify the amount of cash wages tipped employees will receive.
  • Inform tipped employees that their cash wages will be increased by the amount of the tip credit, which can’t exceed the value of tips they actually receive.
  • Advise tipped employees that their tips are their own (i.e., the employer can’t demand that tips be turned over), except for valid tip-pooling arrangements that are limited to employees who customarily and regularly receive tips. Employees must also be notified of any required tip-pool contribution.
  • Warn employees that the tip credit won’t apply to anyone who didn’t receive notice.

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