The Colorado Department of Labor and Employment has announced that, effective January 1, 2013, the minimum wage for non-exempt employees will increase from $7.64 to $7.78 per hour. Moreover, the minimum wage that tipped employees must be paid increases from $4.62 to $4.76 per hour, whereas the maximum tip credit employers may apply towards meeting their minimum wage obligation remains $3.02 per hour. Colorado joins Missouri, Vermont, and 7 other states that will have increased minimum wage rates in 2013.
For the first time since July 2009, the Missouri minimum wage will exceed the federal rate. The Missouri Department of Labor & Industrial Relations announced that, effective January 1, 2013, the state minimum wage for non-exempt employees will increase from $7.25 to $7.35 per hour. Moreover, the minimum wage that tipped employees must receive increases from $3.63 to $3.68 per hour, and the maximum tip credit employers may take increases from $3.62 to $3.67 per hour. The Missouri announcement comes a few days after Vermont announced an increased 2013, and shortly after a host of other states announced higher minimum wage obligations for employers in 2013.
The Vermont Department of Labor has announced that, effective January 1, 2013, the state minimum wage will increase from $8.46 to $8.60 per hour for non-exempt employees. Additionally, the minimum wage for tipped employees increases from $4.10 to $4.17 per hour. Moreover, the maximum tip credit employers may take increases from $4.36 to $4.43 per hour. For a list of states that will also increase their minimum wage in 2013, please see out previous post.
By Sarah Green
In the latest decision concerning service charges and tips in the hospitality industry, the Maine Supreme Court recently addressed whether banquet wait staff may share a “service charge” paid by customers with other employees under Maine law without violating Maine’s tip credit statute. In Hayden-Tidd v. The Cliff House & Motels, Inc., the plaintiff, a former banquet server, appealed summary judgment dismissing her putative class action, which alleged that the employer violated Maine law by not paying her and her fellow servers the entire mandatory “service charge” assessed to customers when the employer instead shared the service charge among other banquet employees. The Maine Supreme Court held that the employer’s practice did not violate Maine law.
Specifically, Maine law in effect during the plaintiff’s employment provided that an employer could pay only half of the minimum wage to its employees who received tips sufficient to raise their wages at or above the statutory minimum ($7.50 per hour during the relevant period). In order to ensure that employees received the entire tip left by the customer, the tip credit statute further required that “[t]ips that [were] automatically included in the customer’s bill or that [were] charged to a credit card must be given to the service employee.”
The employer in this case charged a mandatory 19% “service charge” for all banquet events, along with a separate line-item for a “gratuity” on customers’ bills, but a gratuity was rarely added by banquet customers. Although customers did not receive any explanation of the service charge or how it is distributed, the employer pooled the service charges collected each week and distributed 13% to banquet servers and the remaining 6% to non-server banquet staff. The employer did not retain any portion of the service charge.
Under this arrangement, the employer paid the plaintiff and her counterparts $3.75 per hour base wages, plus the 13% tip credit – resulting in average per hour wages of $23.92 to $35.09. While this was well above the minimum wage, the plaintiff argued that, based on the tip credit statute’s language requiring that tips that are automatically included in a customer’s bill be given to the employee, the employer’s practice of allocating a portion of the service charge to banquet staff other than the servers violated the statute. The plaintiff claimed that, as a result, the employer was not entitled to a tip credit against the minimum wage for the amounts of the service charge provided to banquet servers, and that she and her fellow servers were therefore not paid the full minimum wage and entitled to an additional $3.75 per hour in compensation.
The court examined whether the service charge should be treated as a tip automatically included in customers’ bills (and therefore required to be wholly provided to the banquet servers), or as an aggregate charge, only a portion of which should be treated as a tip. Noting that “tip” was undefined in the statute, the court held that nothing in the statute required the employer to treat the entire service charge as a “tip.” The court further observed that several facts militated against finding that the entire charge was a tip, including that the “service charge was not called a ‘tip’ in the contract with the customer; and the service charge was not individually paid to the banquet servers by the persons served.” Accordingly, the court found that the employer was “engaged in a practice that was distinct from the practice of calculating a total gratuity on a bill given to customers at the time of service,” which, according to the court, was the practice the statute was intended to address. As such, the court held that the employer’s practice was lawful and affirmed summary judgment.
It also bears noting that, after the plaintiff initiated her lawsuit, but before the lower court’s ruling, the tip credit statute was amended to specifically permit the employer’s service charge arrangement. The law, as amended, now states that an “employer in a banquet or private club setting may use some or all of any service charge to meet its obligation to compensate all employees at the rate required by this section.” Because the Maine Legislature did not state that the amendment was retroactive, however, it had no bearing on the court’s decision in Hayden-Tidd.
Photo credit: Ducky's Deluxe Business Cards
According to a recently-released Field Assistance Bulletin, the Department of Labor’s Wage and Hour Division (WHD) has advised its staff to uniformly enforce a rule that became effective on May 5, 2011 governing ownership of employee tips under the Fair Labor Standards Act (FLSA). In many states employers are permitted to take a “tip credit,” or pay employees less than the minimum wage so long as the employees receive sufficient tip income to make up the difference. The new WHD tip rule stipulates, among other things, that tips are the property of the employee regardless of whether the employer has taken a tip credit under section 3(m) of the FLSA, and that an employer is prohibited from using an employee’s tips for any reason other than as a tip credit or in furtherance of a legitimate tip pool. The bulletin sent to WHD regional administrators and district directors emphasizes that this rule will be enforced in all states, even the nine states under the jurisdiction of the Ninth Circuit. To learn more about the bulletin and its potential implications for employers, please continue reading at Littler's Washington D.C. Employment Law Update.
The Vermont Department of Labor has announced the state’s 2012 minimum wage rates. Effective January 1, 2012, an employee must be paid at least $8.46 per hour, a 31-cent increase from 2011. Additionally, tipped employees must be paid at least $4.10 per hour, a 15-cent increase from 2011. The maximum tip credit an employer may take increases 16 cents per hour to $4.36 per hour. For a list of 2012 minimum wage rates in other states, please see our previous post.
Although the 2012 federal minimum wage will remain unchanged at $7.25 per hour, six states have announced that their minimum wage will increase on January 1, 2012. Additionally, one state has proposed an increase, and another will announce its 2012 minimum wage either this month or in December. One state, however, announced that its minimum wage will not change in 2012.
States Increasing Minimum Wage
Arizona: The Industrial Commission announced a 30-cent per hour increase, from $7.35 to $7.65 per hour; an employer can pay a tipped employee a wage up to $3.00 per hour less than the minimum wage – $4.65 per hour.
Florida: The Department of Economic Opportunity announced a 36-cent per hour increase, from $7.31 to $7.67 per hour; tipped employees must be paid at least $4.65 per hour. The minimum wage was previously increased six cents per hour on June 1, 2011.
Montana: The Department of Labor and Industry announced a 30-cent per hour increase, from $7.35 to $7.65 per hour.
Ohio: The Department of Commerce announced a 30-cent per hour increase, from $7.40 to $7.70 per hour; the minimum wage for tipped employees increases 15 cents per hour, from $3.70 to $3.85 per hour. Additionally, employers can pay the federal minimum wage to minors ages 14 & 15-years old, and adults if the business’s gross revenue is $283,000 per year (previously $271,000).
Oregon: The Bureau of Labor & Industries announced a 30-cent per hour increase, from $8.50 to $8.80 per hour.
Washington: The Department of Labor & Industries announced a 37-cent per hour increase, from to $8.67 to $9.04 per hour.
States Proposing Minimum Wage Increase
Colorado: The Department of Labor & Employment’s proposed Minimum Wage Order No. 28 includes a 28-cent per hour increase in the minimum wage, from $7.36 to $7.64 per hour. A 28-cent per hour increase is also proposed for tipped employees, from $4.34 to $4.62 per hour.
States Where Minimum Wage Announcement Is Pending
Vermont: Although by this time last year an announcement had been made concerning the 2011 minimum wage, representatives from Vermont Department of Labor have indicated that the 2012 rate will not be announced until later this month, or possibly in December. We will report on the announcement when made.
States Where Minimum Wage Remains Unchanged
Missouri: The Missouri Department of Labor announced that the state minimum wage will remain unchanged at $7.25 per hour.
On April 5, 2011, the Wage and Hour Division of the U.S. Department of Labor published its final amendments to regulations interpreting the Fair Labor Standards Act of 1938 (FLSA) and the Portal-to-Portal Act of 1947.
The new regulations provide specific guidance pertaining to ownership of employee tips, a description of permissible tip pooling arrangements, and clarification of the required notice to a tipped employee concerning an employer’s intent to utilize the FLSA’s tip credit. The DOL explains the amendments were driven by a need to revise regulations that are out of date as a result of “subsequent legislation.” The final amendments to the regulations, which differ in some significant respects from those the DOL originally proposed in 2008, will be effective May 5, 2011.
The final regulations reflect the DOL’s reaction to comments received during the 2008 proposed rules’ notice period, including comments submitted to the Department by Littler Mendelson. Citing comments it received, the DOL explained its decision not to include some language contained in amendments it originally proposed in 2008 and stated the final amendments update only those sections it determined “required change to reflect statutory enactment or outdated examples contained in the regulations.” The final rules also include changes to regulations concerning tipped employees that the DOL says are designed to bring its tip credit regulations in line with the Wage and Hour Division’s “long-standing and settled policies” concerning tipped employees.
The amendments to the DOL’s tip credit regulations are the regulations’ first changes in more than 44 years. The DOL’s original tip credit regulations were promulgated in 1967, one year after the 1966 FLSA amendment which enacted section 3(m) and created the tip credit provision. Although section 3(m) was amended in 1974 and again in 1996, the tip credit regulations remained unchanged. The DOL attempted to bridge the differences between the 1967 regulations and the amended Act through positions and policy expressed in opinion letters and its Field Operations Handbook. Courts, however, have not consistently adopted these DOL positions and policies, creating considerable uncertainty in this area.
Specifically, the final tip credit regulations clarify that:
- An employer is prohibited from using an employee’s tips for any reason other than as a tip credit to make up the difference between the minimum wage and required tip credit cash wage, or in furtherance of a legitimate tip pool.
- An employer must notify employees of any required tip pool contribution amount, but there is no maximum contribution percentage on valid mandatory tip pools.
- An employer must advise an employee in advance of its use of the tip credit pursuant to the provisions of section 3(m) of the FLSA (i.e., the amount of the cash wage that is to be paid to the tipped employee; the amount by which the wages of the tipped employee are increased on account of the tip credit; that all tips received by the employee must be retained by the employee except for tips contributed to a valid tip pool; and that the tip credit shall not apply to any employee who does not receive the notice).
Notably, the DOL rejected a position urged by many commenters that employers should be required to provide written notice of an employer’s intent to use the tip credit. Instead, the DOL adopted the position advocated by Littler Mendelson in its comment to the 2008 proposed rule that verbal notice was sufficient.
Other changes included in the final amendments to the regulations include:
- Incorporation of the language from the Employee Commuting Flexibility Act of 1996 into the regulations.
- Revising regulations concerning the Youth Opportunity Wage (a temporary sub-minimum wage paid to workers under age 20) to cite provisions of the Small Business Job Protection Act of 1996.
- Modifying regulations concerning agricultural workers on water storage/irrigation projects to be consistent with the 1997 Departments of Labor, Health and Human Services, Education, and Related Agencies Appropriations Act.
- Revising regulations pertaining to volunteers at private non-profit food banks to include exemptions included in the Amy Somers Volunteers at Food Banks Act of 1998.
- Changing the regulatory definition of an “employee . . . in fire protection activities” to be consistent with a 1999 amendment to the FLSA that defines the term.
- Revising overtime regulations concerning calculations of the “regular rate” of pay to include provisions from the Worker Economic Opportunity Act of 2000 that exclude the value of stock options from the regular rate calculation.
- Addition of language to regulations pertaining to the exempt status of salesmen, partsmen, or mechanics of automobiles, trucks, or farm implements that reflects a 1974 amendment to section 13(b)(10) of the FLSA.
- Updating the regulations with “technical amendments” to reflect the increase in the amount of the minimum wage and other outdated threshold amounts, and eliminating outdated references in the regulations to former minimum wage rates.
The final amendments also reflect the DOL’s decision to abandon certain 2008 proposed changes. The DOL elected not to make proposed substantive changes to regulations regarding: compensatory time (continuing to allow public employees to use compensatory time on a date requested absent undue disruption to the employer); the fluctuating workweek (making only editorial revisions to these regulations); and meal credits (determining that further study concerning the impact of dietary or religious restrictions and whether employees had adequate time to eat was warranted before proposed changes were adopted). While the DOL amended language of its regulations pertaining to automobile salesmen, partsmen, or mechanics, it decided not to change its regulations concerning industry service advisors or writers, rejecting a proposed rule change that would have provided these employees with exempt status.
For more information, see Littler's ASAP, Final Amended FLSA Regulations Make Significant Changes to Tip Credit Processes and Proposed Fluctuating Work Week Rules.
Addressing an issue of first impression in the Fourth Circuit, a Maryland federal court has held that the owner of a restaurant/tavern—who is also a bartender at his establishment—may not lawfully participate in his employee bartenders’ tip pool under the Fair Labor Standards Act, 29 U.S.C. §§ 201 et seq. (FLSA). In Gionfriddo v. Zink, LLC, et al., the court was asked to decide whether an “employer” may also be a “tipped employee” and receive a share of the tip pool. Other bartender employees challenged the employer's acts and the court agreed with the employees, noting that “[e]very court that has considered the issue has unequivocally held that the FLSA expressly prohibits employers from participation in employee tip pools.” The court left open the “theoretical” possibility that, in some close circumstances, an individual can be an “employer” under the FLSA and at the same time share in a tip pool. This case, however, was not one of those close circumstances.
While the general rule is that employees must be paid minimum wage, i.e., $7.25 per hour under the FLSA, an exception exists for “tipped employees.” Tipped employees are those who are “engaged in an occupation in which they customarily and regularly receive more than $30 a month in tips.” 29 U.S.C. § 203(t). Under these circumstances, an employer satisfies the FLSA requirement if it pays tipped employees at least $2.13 per hour, and that wage, combined with tips, equals or exceeds $7.25 per hour. 29 U.S.C. § 203(m). In this case, the parties agreed that bartending is a tipped occupation.
The defendant owner argued that the language, context, and legislative history of the FLSA compels a conclusion that an owner can be both an employer and employee for purposes of the tip pool provision. The court disagreed, stating that “it would be an anathema to the purpose behind the FLSA to simultaneously allow [an owner] to take tips from a collective tip pool that was set up to allow him to pay his employees at a rate substantially below the minimum wage” and that a contrary finding “would broaden the FLSA’s tip credit provisions to a point where they would become meaningless.”
The court also held that the defendant owner violated the Maryland Wage and Hour Law (MWHL), the state equivalent of the FLSA, by improperly participating in the tip pool. However, the court ruled that the bartender employees who sued were not entitled to recover overtime wages under the MWHL because the law specifically exempts restaurants from its overtime provision. MD. CODE ANN. LAB. & EMPL. § 3-415.
This entry was written by Steven E. Kaplan.
Photo credit: chestnutphoto
As we wrote last month, the New York State Department of Labor has issued amended wage regulations for restaurants and hotels effective January 1. The DOL has now issued a notification to employees that the employer must post the regulation’s requirements in a conspicuous place in the establishment. Note that the poster is somewhat misleading with respect to the overtime rate for tipped employees. Overtime for tipped employees is one and one half times the minimum wage less the tip credit.
The poster also mentions call-in pay and spread-of-hours pay. Call-in pay is additional hours at minimum wage owed to employees who are sent home early. Spread-of-hours pay is an additional hour of pay at minimum wage owed to any employee when the length of the interval between the beginning and end of his or her workday exceeds ten hours. It should be kept in mind that while employers will have until March 1, 2011, to implement the required changes, the changes must be retroactive to January 1, 2011. Therefore, it is imperative that employers begin keeping thorough records of hours worked and wages and tips paid.
This entry was written by Andrew Marks.