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Department of Labor Issues Updated FLSA Regulations

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April 13, 2011

By Staci Ketay Rotman and Lindsey M. Marcus

Last week, the U.S. Department of Labor (DOL) issued a final rule updating regulations issued under the Fair Labor Standards Act (FLSA) and Portal-to-Portal Act.  The rule takes effect 30 days after publication.   A summary of the key provisions included in the updated regulations is as follows:

  • The DOL adopted the amended FLSA’s statutory definition of “employee in fire protection activities,” which did not limit the amount of non-exempt work that such an employee may engage in while still being exempt.  However, the 20 percent limit for such work will remain in effect for exempt employees engaged in law enforcement activities. 
  • The DOL also updated the rules regarding tip credits, which permit employers to pay tipped employees less than the minimum wage as long as the employee’s pay plus tip equals or exceeds the minimum wage.  The DOL raised the maximum federal tip credit from $4.42 to $5.12 per hour.  It also clarified that the FLSA does not impose a maximum contribution to a valid tip pool, which can only include employees who “customarily and regularly” receive tips. 
  • Employers are allowed to pay an employee who is less than 20 years old a subminimum wage of not less than $4.25 per hour for the employee’s first 90 calendar days of employment.
  • Stock options should be excluded from calculating an employee’s regular rate of pay.

What is most notable in these updated regulations is that the DOL declined to adopt a number of the agency’s 2008 proposals based on comments received.  One such proposal included an initiative to change the computation of overtime under the fluctuating workweek method.  The DOL had proposed amending the regulations to allow employers to pay bona fide bonus or premium payments without destroying an employer’s ability to pay half-time overtime under the fluctuating workweek method.  Ultimately, 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 proposed rule could have the unintended effect of permitting employers to shift a large portion of employees’ compensation to bonus and premium payments in an effort to lower the fixed amount of straight-time pay.

The DOL also declined to adopt the following proposals of interest:

  • Compensatory time for state and local government employees: The FLSA permits state and local governments to grant employees comp time instead of cash overtime pursuant to an agreement with the employees or their representatives, e.g., through a collective bargaining agreement.  The DOL had consistently interpreted its regulations as requiring employers to allow employees to use their comp time on the specific date(s) requested unless doing so would unduly interfere with the employer’s operations.  In light of several appellate court cases, the DOL had proposed relaxing that requirement to be within a “reasonable period” after the employee made the request, but decided against it because other courts recently came out in favor of the DOL’s interpretation.
  • Overtime exemption for boat sellers: The final regulations reflect statutory changes granting an overtime exemption for sales representatives primarily engaged in selling boats and eliminating the overtime exemption for partsmen and mechanics servicing trailers or aircraft.  However, the DOL declined to adopt a proposed change to extend the overtime exemption to service managers, service writers, service advisors or service salesmen who are not primarily engaged in the work of a salesman, partsman or mechanic because the statute does not include these positions.
  • Meal credits: The DOL rejected a proposed rule that would have permitted employers to count the reasonable cost of a meal furnished to an employee as a credit toward the minimum wage regardless of whether the employee accepted it voluntarily.  Noting comments that this policy unfairly penalizes employees who cannot accept the meals due to dietary or religious restrictions, the DOL stated that further study was warranted before changing the requirement that the employee’s acceptance of the meal must be “voluntary and uncoerced” in order to count as a wage credit.
  • Commuting time: The DOL declined to adopt examples of when employers are not required to pay employees who use their employer’s vehicle for commuting from home to work because it found that the compensability issues were best resolved on a case-by-case basis.

Although the final rule reflects the current position of the DOL, this is a good reminder that FLSA regulations are fluid and subject to change.  Employers should be vigilant to ensure ongoing compliance.

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