U.S. Department of Labor Updates Wage Hour Regulations
On April 5, 2011, the U.S. Department of Labor (DOL) issued a final rule updating the regulations it has promulgated under the Fair Labor Standards Act (FLSA). The final rule will take effect on May 5, 2011. Some of the key provisions in the final rule alter current standards in certain areas of importance to some employers.
For employers who pay their non-exempt employees on a salaried basis under a “fluctuating workweek” arrangement, there is a potentially significant change. Under this pay method, employers may pay their non-exempt employees a fixed salary which is deemed to cover all hours worked at straight time. For hours worked over 40 in a workweek, the employer pays the employee only an extra half-time, rather than time-and-a half. Under DOL regulations, the fluctuating workweek method applies when the following conditions are satisfied: the employee’s hours fluctuate from week to week; the employee receives a fixed salary that does not vary based on the number of hours worked each workweek; there is a “clear mutual understanding” between the parties that the fixed salary is compensation for all hours worked each workweek; the fixed salary is sufficient to provide the employee at least the minimum wage for all hours worked each workweek; and the employee receives additional compensation (in addition to the salary payment) for all overtime hours worked at a rate of at least one-half the employee’s regular rate of pay. Many employers use the fluctuating workweek method to reduce the amount of overtime owed to their non-exempt employees.
In 2008, the DOL proposed amending the regulations to allow employers to pay incentives or bonuses to salaried non-exempt employees without destroying the employer’s ability to use the fluctuating workweek method. In the final rule, however, the DOL declined to make this change, concluding that such incentive and bonus payments were not compatible with the fluctuating workweek method. The DOL reasoned that the allowing incentives or bonuses to be paid to employees who are under a fluctuating workweek arrangement could result in employers shifting a large portion of employees’ compensation to bonus and premium payments in an effort to lower their salaries. Thus, as of May 5, 2011, employers who use the fluctuating workweek method and pay their employees incentives or bonuses may open themselves up to overtime liability.
The DOL also updated the rules regarding tip credits, which permit employers to pay tipped employees less than the minimum wage, so long as an employee’s pay plus tips equal or exceed the minimum wage. The DOL raised the maximum federal tip credit from $4.42 to $5.12 per hour, to reflect the increase of the minimum wage to $7.25/hour.