Although the Federal minimum wage will remain at $7.25 in 2013, the minimum wage in the followings States will increase for tipped and non-tipped employees, effective January 1st.
According to the Fair Labor Standards Act (FLSA), employers in States with both Federal and State minimum wage laws must pay the higher minimum wage rate. Information related to minimum wage rate increases can be found on the Department of Labor’s (DOL) website: http://www.dol.gov/whd/minwage/america.htm, Federal Wage and Labor Law Institute (FWLLI) or through BNA – the Bureau of National Affairs, Inc. Employers can also access: http://www.dol.gov/whd/state/tipped.htm for resources related to tipped employees.
*The DOL will produce updated minimum wage tables approximately two to four weeks after the increases become effective in the respective states.
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Are you confused about what deductions can be taken out of an employee’s paycheck? Well, you are not alone! The Wage and Hour Division (WHD) of the Department of Labor completed 33,295 compliance actions and collected more than $224 million in back wages for more than 275,000 workers during the 2011 Fiscal Year (http://www.dol.gov/dol/budget/2013/bib.htm#whd). The WHD serves as the governing agency for Federal laws pertaining to minimum wage, overtime pay, recordkeeping and prevailing wages for government service and construction. The WHD provides a general overview of permissible wage deductions, but most wage deduction requirements are dictated and outlined within State laws.
Under the Fair Labor Standards Act (FLSA), permissible deductions from minimum wage include wage meals, lodging and similar facilities, tax withholdings, court-ordered payments, and voluntary deductions/payments to assignees. Specifically, these wage deductions are among the most common deductions that can legally decrease an employee’s wages below the federal or state applicable minimum wage.
Meals, Lodging and Other Facilities
Employers can deduct the reasonable cost of providing meals, lodging, and similar facilities. Only the reasonable cost of these items can be deducted – not any amount attributable to an employer’s profit.
Employers are permitted to deduct taxes from an employee’s wages. These deductions are permitted for the employee’s share of Social Security taxes, as well as other federal, state and local taxes.
The FLSA does not restrict court-ordered garnishments as long as neither the employer nor any person acting on its behalf derives any benefit from the transaction. However, federal and state garnishment laws can set limits on the amount of wages that can be garnished.
Voluntary Deductions/Payments to Assignees
An employer can deduct amounts the employee directs the employer to pay to third parties, including deductions for: U.S. savings bonds, union dues, employee accounts with merchants, charitable contributions and employee benefit plan premiums or contributions. However, these deductions are permitted only if the employee has voluntarily assigned such amounts to the third-party, and neither the employer nor any person acting on the employer’s behalf derives any profit from the transaction.
There are many other common and permissible deductions that are allowed as long as the employee’s wages do not fall below federal or state applicable minimum wage. It is important to stress that many of these deduction requirements are regulated by the state. For example, many retail employers look for ways to recover cash register shortages from their sales clerks. Many state wage payment laws, however, forbid deductions for this purpose. Listed below are common deductions employers take from employee wages:
- Items Considered to Primarily Benefit or Convenience the Employer
Items such as uniforms, tools, damages to the employer’s property, financial losses due to customers not paying bills and theft of the employer’s property by the employee or other individuals.
The FLSA does not require that employees wear uniforms. However, if wearing a uniform is required for safety or is the nature of the business, the cost and maintenance of the uniform is considered to be a business expense of the employer. An employer may prorate deductions for the cost of the uniform over a period of paydays.
According to the Department of Labor, if an employer makes a loan or advance of wages to an employee, the principal can be deducted from the employee’s earnings even if the deductions cuts into the minimum wage or overtime pay due to the employee. However, an employer cannot deduct for administrative costs or charge any interest if it brings the employee below minimum wage. Additionally, some states may have rules governing how and when an employer can collect from the employee.
Federal law does not prohibit employers from recouping wage overpayments. However, state laws should be reviewed prior to making these deductions as some states do not allow wage overpayments to be collected. It is considered an employer error that should not penalize the employee.
Requiring written authorization for deductions is common. Even if this is not mandated by federal or state laws, it is always an HR Best Practice to have an employee’s written authorization and documentation to make payroll deductions.
Many employers find it difficult to accurately calculate overtime due to complex calculations and changing regulations. The burden falls on the employer to properly classify an employee (as exempt or non-exempt) and provide compensation in compliance with the Fair Labor Standards Act (FLSA). According to the Wage and Hour Division of the Department of Labor, employers were fined $3.1 million in penalties for FLSA violations in 2008 and more than 197,000 employees received a total of $140.2 million in lawsuits regarding minimum wage and overtime back wages. The growth in employee lawsuits can also be observed in 2010; the number of FLSA lawsuits filed in federal courts in the second quarter of 2010 were 22 percent higher than in the first quarter of 2010.
Exempt vs. Non-Exempt
As determined by the FLSA, employees are placed in an either the exempt or the non-exempt category based on the employee’s job duties and responsibilities. The exemption refers to an employee’s eligibility to be paid overtime for hours worked over 40 in a workweek. If an employee is in the non-exempt category, the employee must be paid overtime, which is an additional one-half of an employee’s regular rate of pay for all hours worked over 40 in a workweek. Some states may have different and more stringent guidelines.
To help avoid penalties involved in calculating overtime, the FLSA recommends compliance with three key guidelines:(1) identify an employee’s regular rate of pay; (2) determine what activities count as hours worked; and (3) apply the FLSA definition of a workweek. Employers are encouraged to comply with these guidelines and retain documentation of compliance to serve as a good faith effort during a Department of Labor (DOL) audit.
Determine What Counts as Hour Worked
Hours worked include the entire time an employee is on duty, on company gorunds or at any other prescribed place of work. The time the employee is “permitted” to work as well as time the employee voluntarily stays late to finish work or comes in early counts as hours worked.
Apply the FLSA Definition of a Workweek
FLSA defines a workweek as a fixed and regularly recurring period of 168 hours, or seven consecutive 24-hour periods. The workweek can begin on any day of the week and at any hour of the day. The frequency of an employee’s pay (i.e. bi-weekly, semi-monthly, monthly) has no impact on determining the fixed workweek. When calculating overtime payment, each workweek must be analyzed individually; two or more workweeks cannot be combined. The workweek is determined by the employee’s start and stop times which remain fixed regardless of the hours the employee is scheduled to work. However, the start and stop times can be changed, as long as the change is intended to be permanent and complies with overtime requirements.
Identify an Employee’s Regular Rate of Pay
An employee’s regular rate of pay is the weighted average of the employee’s hourly rate. To calculate calculate the rate of pay, divide the total pay for employment in a workweek by the total number of hours actually worked. Total pay is all payments made to or on behalf of the employee including shift differential, non-discretionary bonuses, promotional bonuses and cost-of-living adjustments. Payments made in the form of goods or facilities customarily provided by the employer are also included. For example, if an employee’s wages include lodging, the reasonable cost or the fair value of that lodging is added to the employee’s earning before determining his/her regular rate. However, deductions for board, lodging or similar facilities do not affect the regular rate of pay calculation; thus the calculation should be made before the deductions are made.
As per the FLSA, certain payments are excluded from the regular rate of pay. These exclusions include:
- Payment for gifts for holidays, special occasions, or as a reward for service;
- Payment made for occasional periods when no work is performed due to vacation, holiday, or failure of the employer to provide sufficient work;
- Premium payments for overtime, or for working on weekends and holidays; and
- Benefits for life insurance and health insurance.
Four Steps to Calculating Total Weekly Compensation
- Step 1: Regular Pay= Total Pay for Workweek + Additional Compensation – Exclusions
- Step 2: Regular rate of Pay= Regular Pay divided by Total Hours Worked
- Step 3: Premium Pay for Overtime= Regular Rate of Pay multiplied by 0.5, multiplied by (Total Hours Worked – 40)
- Step 4: Total Weekly Compensation= Total Pay for Workweek + Premium Pay for Overtime
Companies should review their compensation and incentive practices to ensure compliance with all applicable Wage & Hour laws to avoid problems or investigations by the DOL. For more information, please visit the DOL’s website: www.dol.gov.
Employers, are you prepared for 2012? During 2011, the Department of Labor (DOL) introduced several new poster requirements effective January 1, 2012. Additionally, several states issued legislation altering state posters pertaining to benefits, minimum wage and safety regulations.
Workplace posters inform employees and employers of their rights and responsibilities. Employers must post mandatory workplace posters in areas clearly visible to the majority of their employees (i.e., break rooms, hallway, and entrances/exits).
- NLRB- Employee’s Right to Unionize (effective April 30, 2012 *Second delay in implementation*)
All state posters listed below must be updated by January 1, 2012.
- Arizona – Minimum Wage and ADOSH (Safety and Health)
- California: San Francisco – Minimum Wage
- Colorado – Minimum Wage
- Connecticut – Paid Sick Leave
- Florida – Minimum Wage
- Illinois – Workers’ Compensation
- Montana – Minimum Wage
- Maine – Child Labor notice and Minimum Wage
- New Jersey – Recordkeeping Obligations for wages, benefits, and taxes
- New Hampshire – Minimum Wage
- Nevada – Fair Employment and Discrimination Notice
- Oklahoma – Workers’ Compensation
- Ohio – Minimum Wage
- Oregon – Minimum Wage and FMLA
- Utah – Unemployment Insurance
- Vermont – Minimum Wage
- Washington – Minimum Wage
California Governor Jerry Brown recently signed bills enacting several new employment statutes that will affect the way employers conduct business. One Statue in particular, Section 2810.5, outlines an employer’s responsibility to communicate an employee’s terms of employment in a written notice. Effective January 1, 2012, employers should present the written notice to non-exempt employees at the time of hire and communicate the content in a manner that is deemed understandable by a “reasonable” person.
The written notice should include:
- The rate or rates of pay and basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime, as applicable.
- Allowances, if any, claimed as part of the minimum wage, including meal or lodging allowances.
- The regular payday designated by the employer.
- The employer’s name, including any “doing business as” names used by the employer.
- The physical address of the employer’s main office or principal place of business, and a mailing address, if different.
- The employer’s telephone number.
- The name, address, and telephone number of the employer’s workers’ compensation insurance carrier.
- Any other information the Labor Commissioner deems material and necessary.
Employers should notify employees in writing, within seven calendar days, if changes transpire to the information above through a written amendment, new written notice or modified paycheck stub containing the new information. Section 2810.5 does not apply to overtime exempt employees or public sector employees. Additionally, it dose not apply to employees covered by a valid collective bargaining agreement if their regular rate of pay exceeds California’s minimum wage by at least 30% and if their overtime compensation is paid at the proper premium wage rate.
The Labor Commissioner will publish a template sample of the notice in the following months for employers to customize. Employers are encouraged to use the template to ensure compliance.
What do you think about this Statue?