Wage & Hour Counsel : Wage & Hour Lawyer & Attorney : Littler Mendelson Law Firm : Employment Law, Labor Relations

By Chris Kaczmarek

New Hampshire recently enacted a number of amendments to its wage and hour laws. Some of these amendments are of great importance to employers in the Granite State.

First, New Hampshire greatly expanded the types of deductions employers may make from employees’ wages. Specifically, an employer may now make such deductions “for any purpose on which the employer and employee mutually agree that does not grant financial advantage to the employer, when the employee has given his or her written authorization and deductions are duly recorded.” The new law provides, however, that such deductions may not be used to offset payments intended for purchasing items required in the performance of the employee’s job in the ordinary course of the operation of the business. In response to this change in the law, which became effective on August 6th, the New Hampshire Department of Labor (NHDOL) has published two new forms for use by employers: (1) a form by which an employee may authorize voluntary deductions; and (2) a form by which an employee authorizes the employer to recoup accidental overpayments of wages. These forms are available on the NHDOL’s website.

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By Ryan L. Eddings

A federal judge in California held this week that employers may lawfully deduct amounts owed by employees on their employer-guaranteed credit cards from the employees’ final pay. In Ward v. Costco Wholesale Corporation, a group of former employees claimed that Costco’s deduction of outstanding amounts owed by these former employees on their Costco-sponsored credit cards from the employees’ final paychecks violated the Fair Labor Standards Act and California minimum wage and overtime legal requirements.

Like many employers, Costco provided a guaranteed credit card program to some employees, guaranteeing the credit card to the issuer in the event of an employee’s default. Each employee signed an authorization permitting Costco to deduct an amount equal to the employee’s credit card then-outstanding balance from the employee’s final paycheck. Each terminating employee received a final paycheck that included pay for all hours worked during the final pay period, as well as accrued vacation and sick leave pay. Costco then deducted an amount equal to the outstanding balance of the employer-sponsored credit card from the employees’ final pay.

At trial, the group of former employees argued that only gross wages for hours worked could be considered in determining whether Costco satisfied its obligation to pay minimum and overtime wages. The court rejected this argument, holding that it could also consider the pay for non-work, such as accrued vacation and sick leave pay. Using this figure, the court concluded that none of the nineteen former employees “had an amount withheld high enough to invade minimum or overtime wages.” Accordingly, the court entered judgment in favor of Costco, holding that plaintiffs failed to prove a violation of the FLSA and California wage and hour laws.

Photo credit: Matthew John Hollinshead

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By Jennifer Nelson

Earlier this week, the Court of Appeals for the Ninth Circuit held that an employer violated Oregon’s wage and hour law by (1) crediting the cost of seasonal workers’ on-site housing toward the Oregon minimum wage, and (2) paying its workers on the day after their last workday instead of on the last workday itself.

The employer in this case, Bear Creek Orchards, Inc., operates peach and pear orchards in Medford, Oregon. The company hires approximately 350 seasonal workers for its month-long harvest. Bear Creek recruits the majority of its workforce from the San Luis, Arizona, area, and offers those workers on-site housing and meals as part of their compensation. Bear Creek charged workers between five and seven dollars a day for the housing, deducted this amount from the workers’ paychecks, and credited that amount toward its minimum wage obligation under Oregon law. In addition, the company generally provided these employees with their final paychecks on the morning after their last day of work.

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The Massachusetts Supreme Judicial Court recently held that the state’s Payment of Wages Law prohibits employers from reducing employee wages to recoup employee debt obligations unless the deduction can be considered a “valid set-off,” which it proceeded to interpret in a very restrictive manner. As the Payment of Wages Law provides for mandatory treble damages and attorneys’ fees, employers should immediately review their payroll practices to ensure that they are not making improper deductions. See our recent ASAP for a detailed analysis for the implications of this decision for employers.

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Puerto Rico is a unique jurisdiction from a payroll tax perspective because Puerto Rico private sector employees are not subject to federal income tax withholding. Puerto Rico employees generally owe personal income tax on employment wages earned and are subject to withholdings required by the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA).

As part of the tax reform recently proposed by the Governor of Puerto Rico, the Puerto Rico Secretary of the Treasury issued Administrative Determination No. 10-09 (AD 10-09), which exempts employers from their obligation to withhold Puerto Rico income tax from wages paid in December 2010 and from the 2010 Christmas Bonus. (Note: this is not a discretionary bonus.) AD 10-09 exempts employers and withholding agents from their obligation to withhold income tax at source from wages paid in daily, weekly, biweekly, bimonthly, and monthly payroll periods in December 2010. The Administrative Determination also exempts employers from the requirement to withhold income tax from the 2010 Christmas Bonus.

Any income that is not considered wages or designated as the statutory Christmas bonus is subject to Puerto Rico income tax withholding. Employers should continue making the withholdings required by federal law, including the FICA and FUTA taxes, and other applicable local and employee voluntary deductions.

This entry was written by Niza Motola.

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New Hampshire recently amended its wage and hour law to permit employers to make deductions from employees’ wages for “legal plans and identity theft plans without financial advantage to the employer when the employee has given his or her written authorization and deductions are fully recorded.” The amendment becomes effective on August 13, 2010.

Although this amendment is modest in nature, it does clarify an issue that previously had confused many New Hampshire employers. Prior to this amendment, the New Hampshire Department of Labor had taken the position that employers could not make deductions from employees’ wages for legal services plans or identity theft plans, even though employees had voluntarily enrolled in those plans and authorized the requisite deductions, because these plans were not identified as permissible deductions under the state’s wage and hour law. This law makes clear that such deductions are now permissible.

This entry was written by Christopher Kaczmarek.

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Effective September 21, 2009, the New Jersey Department of Labor and Workforce Development, Division of Wage and Hour Compliance, adopted a new rule allowing employers to make payroll deductions for health club membership fees or for child care services if payment is authorized in writing by an employee or pursuant to a collective bargaining agreement and approved by the employer. In promulgating this new rule, the Department of Labor amended New Jersey Administrative Code § 12:55-2.1, which sets forth the very limited circumstances in which an employer may make a payroll deduction.
 

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On May 19, 2009, the Sixth Circuit Court of Appeals found that the operator of health and fitness centers violated the salary basis requirements under the Fair Labor Standards Act (FLSA) when it deducted money from the base compensation of employees to reclaim previously paid bonuses. (Baden-Winterwood v. Life Time Fitness, 6th Cir., No. 07-4437, 5/19/09). Accordingly, the employer could not establish that the employees from whom money was deducted were exempt, salaried employees.

In its decision, the Court held that the salary basis test adopted by the U.S. Supreme Court in Auer v. Robbins, 519 U.S. 452, 117 S. Ct. 905, 137 L. Ed. 2d 79 (1997), should be applied to pay periods occurring before August 23, 2004, and the salary basis test stated in 29 C.F.R. § 541.603 should be applied to pay periods occurring after August 23, 2004. Under the Auer test, an employee is not paid on a salary basis, and thus loses exempt status, if (1) there is an actual practice of salary deductions or (2) an employee is compensated under a policy that clearly communicates a significant likelihood of deductions. In the revised Regulations, which became effective on August 23, 2004, the Department of Labor (DOL) noted that "[a]n actual practice of making improper deductions demonstrates that the employer did not intend to pay employees on a salary basis." 29 C.F.R. § 541.603(a). Under the Regulations, there is no violation of the salary basis requirements and, therefore, no loss of the exemption, unless there is an actual practice of improper deductions.

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