How the recently updated FLSA regulations may impact your business

On May 5, 2011, a handful of updated Fair Labor Standards Act (FLSA) regulations went into effect, according to the final rule published in the Federal Register a month earlier.  While many expected these long-awaited revisions to address issues with the 2008 proposed rule, the final changes offer clarification more than actual new requirements.

The FLSA updates are especially relevant for employers who use the FLSA “tip credit” to meet minimum wage requirements, as well as those with salaried, nonexempt employees compensated under the fluctuating workweek payment method.

To keep you on track with the latest guidelines, here’s a summary of the key changes:

Tip credit – In general, the FLSA requires employers to pay employees a minimum wage of $7.25 per hour. However, a “tip credit” provision allows you to pay tipped employees below minimum wage, as long as the wage and the employees’ tips equal at least the minimum wage when combined. Under the final rule, an employer using a “tip credit” must inform employees of its use in advance, as well as explain the direct cash wage the employee is being paid and the additional amount the employer is using as a credit against tips received.

Tip pools – Regarding tip pooling (placing all tips in a common pool for disbursement), the pool can only include employees who “customarily and regularly” receive tips. If non-tipped employees are in the pool, you cannot take a tip credit and must instead pay the full minimum wage. Under the tip pooling provision, you must also:

•    Notify employees of any mandatory tip pool contributions
•    Only take a tip credit for the amount of tips each employee ultimately receives
•    Avoid retaining any of the employees’ tips for any other purpose

Fire protection activities – The final rule eliminates the “20 percent rule” for employees engaged in fire protection activities, such as firefighters, paramedics, emergency medical technicians, rescue workers, ambulance personnel and hazardous material workers. These individuals are no longer included among the exempt employees who may spend up to 20 percent of their working time on nonexempt, non-fire protection work. This 20 percent provision now applies to law enforcement personnel only.

Proposed changes that didn't make the cut ...

Just as significant as the new regulations that passed were those that didn’t.  The DOL rejected a handful of proposals (or clarifications to existing regulations), including:

“Fluctuating workweek” method of calculating overtime for salaried, nonexempt employees – The fluctuating workweek method of overtime allows employers to pay a fixed salary to nonexempt employee whose hours vary from week to week – and to only pay the employee at a rate of one-half the regular hourly rate for any overtime hours worked in a week. Under an earlier proposal, bonus or premium payments would have been included in calculating the regular rate.  This was dismissed, however, since critics feared it would lead employers to reduce fixed weekly salaries and shift the bulk of wages to bonus and premium pay.

Granting of requested compensatory time – Also dismissed was a proposal to allow public-sector employees to grant compensatory time requested “within a reasonable period” of the request, instead of the specific dates submitted. The DOL upheld its longstanding position that employees are entitled to use compensatory time on the dates they request, as long as it doesn’t cause undue disruption to the business.

Overtime exemption for certain employees – The DOL will not allow the following to qualify for an overtime exemption: service managers, service writers, service advisers, service salesmen, sellers of boats, trailers and aircraft, partsmen, and mechanics servicing trailers or aircraft.

Meal credits – Finally, the DOL will not permit an employer to count the cost of a company-provided meal toward the employee’s minimum wage, whether or not accepting the meal is voluntary.

While many of these FLSA updates are specific to certain businesses and industries, others have more far-reaching application. Now is the time to carefully review the changes to ensure you’re in compliance with the latest rules.

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