Month: March 2016

Wage and Hour Issues for Tipped Employees

Authored by Anne G. Bibeau, Esq.

Business owners often don’t give the Fair Labor Standards Act (FLSA) any thought until they are served with an FLSA lawsuit or the U.S. Department of Labor (DOL) pays a visit. Although the law has been around for longer than most businesses (since 1938), employers still struggle to understand their obligations. Mistakes are common, and plaintiffs’ attorneys are poised to exploit them. FLSA litigation has been on the rise, with eight straight years of increased lawsuit filings.

Hotels and restaurants are particularly vulnerable because of their large numbers of tipped staff. The following issues are frequently a target for FLSA litigation and DOL investigations in the hospitality industry:

Are you calculating overtime correctly? Businesses must pay all non-exempt employees at least the federal minimum wage (currently $7.25 per hour), plus overtime at the rate of 150% the employee’s regular hourly rate for all hours worked in excess of 40 in any given week. For tipped employees, the employer is permitted to take a tip credit toward the minimum wage; the employer must pay at least $2.13 per hour in direct wages, with a maximum tip credit of $5.12 per hour. For example, if a hotel pays a bellhop $2.13 per hour in direct wages, claiming the maximum tip credit of $5.12 per hour, and the bellhop works 50 hours in a particular week, the hotel should calculate his wages as follows:

  • $2.13 (direct wages) x 50 hours = $106.50 direct wages before overtime premium
  • $7.25 (regular rate of pay) x .5 (overtime premium rate) x 10 hours = $36.25 overtime premium
  • Total wages owed = $106.50 + $36.25 = $142.75

Do you give tipped employees the proper notice regarding the tip credit? In order to take the tip credit, the employer must provide specific notice to tipped employees regarding their rights and tip credit requirements. If the employer cannot prove that each tipped employee received the notice, the employer will be denied the tip credit and will have to make up the difference in straight time and overtime wages. The best practice is to prepare a comprehensive notice (the DOL doesn’t provide one) and post and distribute it to tipped employees, keeping a signed receipt from each employee.

Are your tipped employees earning enough tips to cover the tip credit? If not, you cannot take the tip credit. You need to track the tips your employees receive so that you can prove you’ve met this requirement.

Do you add a service charge or fixed gratuity to your customers’ bills? Many restaurants add a compulsory charge, such as a fixed “service” or “gratuity” charge, to customers’ bills, particularly for large parties or events. Those compulsory charges are not tips, even if you distribute them to the wait staff. If you do distribute those compulsory charges to the wait staff, that will increase the wait staff’s regular rate of pay, thereby increasing the amount of overtime premium they will be due for any overtime worked that week.

Who’s in the tip pool? If you have a tip pool, only tipped employees can participate. If employees who do not regularly and customarily receive tips – such as chefs, dishwashers, janitors, and managers – get to take a dip in the tip pool, or if any of the tips go to the business itself, the tip pool will be deemed invalid. Also, if you’re using a tip pool, there are specific notices you must give employees regarding the pool.

What else are your servers and valets doing? The tip credit is only available for tipped work. If tipped employees perform other, non-tipped work (such as cleaning or cooking), you need to make sure that those non-tipped duties do not exceed 20% of the employee’s workweek.

Do you deduct credit card charges from your employees’ tips? Credit card companies take a bite out of each transaction, and it’s permissible to deduct the same percentage from the tips customers charge. For example, if Visa charges you 2% on each charge, you can deduct 2% from the tip portion of the charge that you pass on to the waitress. You should not deduct more than Visa does, and you must make sure that the deduction does not reduce the waitress’s wages below the minimum wage and that she’s receiving sufficient tips to cover the tip credit. Also, you must pay her tips by the next regular pay day, even if Visa takes longer to process the charge.

Who pays for uniforms and broken dishes? You can’t make deductions from an employee’s wages that reduce the wages to below the minimum wage. Also, in Virginia, there are strict rules about what can be deducted from an employee’s wages and in what circumstances.

The best practice to reduce FLSA liability is to develop appropriate policies and procedures, train your employees and their supervisors those policies and procedures, and document everything: training and notices, tips, hours worked, etc. You should audit your wage and hour practices frequently – at least annually – to ensure that problems are identified and corrected quickly. Frequent audits are critical, even if you use a payroll service, because ultimately the business itself and possibly its owners and managers will be held liable for any mistakes. Finally, do not underestimate the task before you; you need legal counsel knowledgeable in the FLSA to assist you. If it were simple, there would be no FLSA litigation.

The Application of the Amorphous “Death Presumption” in Virginia Workers’ Compensation

Authored by Brett M. Saunders and Brian L. Sykes

Many practitioners in the field of workers’ compensation are aware of the “death presumption.” The rule is often understood as this: when an employee is found dead at his place of work, there is a presumption that a compensable injury has occurred. However, this is not the case. Although such a presumption does exist, it is severely limited in scope and rarely applicable to a workers’ compensation claim.

Knowing the limited scope of the presumption can be extremely valuable to practitioners because the presumption itself carries significant weight with the court. This article is intended to explain Virginia’s death presumption and examine the many caveats to its application by examining the purpose and effect of the death presumption, its origin and history, and its application by the courts.

Click here to view, or download the full article.

This article originally appeared in the Journal of Civil Litigation, Vol. 27, No. 1 (Spring 2015), a publication of the Virginia Association of Defense Attorneys. It appears here with permission.

Paid Sick Leave Mandate Proposed by DOL for Contractors

DOL has recently (Feb 24) proposed a rule requiring federal contractors to provide workers with up to seven days of paid sick leave per year. The proposal is for contractors to offer one hour of paid leave for every 30 hours of work. Employees could use the time to care for themselves or family members and for absences resulting from sexual assault, domestic violence or stalking.

The proposed paid leave requirement would apply to new or renewed contracts beginning in 2017. There are some limited exceptions proposed, including for arrangements with Indian tribes and construction contracts under $2,000, and the proposed rule further exempts contractor employees who perform work on a federal contract but also spend at least 80 percent of their weekly hours on other non-contract work.

Also of note, sick leave would carry over from year to year. Service Contract Act and concession contracts are within coverage of the proposed rule, and not just construction contracts.

There is a 30-day public comment period, after which DOL has until Sept 30 to issue a final rule. As of the posting of this blog, the proposed rule is available at the Federal Register website by Clicking Here.

Paid Sick Leave Mandate Proposed by DOL for Contractors

DOL has recently (Feb 24) proposed a rule requiring federal contractors to provide workers with up to seven days of paid sick leave per year. The proposal is for contractors to offer one hour of paid leave for every 30 hours of work. Employees could use the time to care for themselves or family members and for absences resulting from sexual assault, domestic violence or stalking.

The proposed paid leave requirement would apply to new or renewed contracts beginning in 2017. There are some limited exceptions proposed, including for arrangements with Indian tribes and construction contracts under $2,000, and the proposed rule further exempts contractor employees who perform work on a federal contract but also spend at least 80 percent of their weekly hours on other non-contract work.

Also of note, sick leave would carry over from year to year. Service Contract Act and concession contracts are within coverage of the proposed rule, and not just construction contracts.

There is a 30-day public comment period, after which DOL has until Sept 30 to issue a final rule. As of the posting of this blog, the proposed rule is available at the Federal Register website by Clicking Here.

Part 2: Paid Sick Leave Mandate Proposed by DOL for Contractors

As an adjunct to our earlier summary blog on DOL’s proposed sick leave mandate for federal contractors, below is the overview of the proposed rule by Vandeventer Black partner and employment law practitioner Anne Bibeau which more fully expands upon the proposed rule and its implications. Please contact Anne for more information at 757.446.8600 or abibeau@vanblacklaw.com.

U.S. Department of Labor Issues Proposed Rule on Mandatory Paid Sick Leave for Federal Contractors
By Anne G. Bibeau, Esq.

The U.S. Department of Labor (DOL) has published a Notice of Proposed Rulemaking (NPRM) to implement President Obama’s Executive Order (EO) 13706, “Establishing Paid Sick Leave for Federal Contractors.” The EO requires that for federal contracts issued on or after January 1, 2017, federal contractors and subcontractors must provide their employees “not less than 1 hour of paid sick leave for every 30 hours worked on or in connection with covered contracts,” up to 56 hours of paid sick leave per year. In the NPRM, DOL describes the rules and restrictions regarding the accrual and use of paid sick leave. The public is invited to submit comments on the NPRM to DOL by March 28, 2016.

The EO’s paid sick leave requirement applies to work on or in connection with “covered contracts,” meaning federal contracts and subcontracts subject to the Davis-Bacon Act (DBA) and the Service Contract Act (SCA), as well as federal contracts for concessions and for services on federal property. Employers must provide the paid sick leave to both FLSA-exempt and non-exempt employees. Recognizing that employers typically do not track hours exempt employees’ hours worked, the NPRM provides that the employer may assume that for purposes of calculating paid sick leave its exempt employees worked 40 hours on or in connection with a covered contract each week.

Significantly, the paid sick leave required by the EO is in addition to the contractor’s obligations under the SCA and DBA. The contractor will receive no credit toward its fringe benefit or prevailing wage obligations under those laws for providing the paid sick leave mandated by this EO. A contractor’s existing paid time off policy may satisfy the requirements of the EO only if the paid time off meets all of the EO’s requirements for paid sick leave.

Under the NPRM, any unused paid sick leave must carry over from one accrual year to the next. A contractor is permitted to, but not required, to pay out used paid sick leave upon termination of employment; however, if the contractor rehires the employee within 12 months, the contractor must reinstate his or her accrued paid sick leave regardless of whether it was paid out previously.

The employee is entitled to use the paid sick leave for: their own illnesses and other health care needs; the care of a family member or loved one who is ill or needs health care; purposes resulting from being the victim of domestic violence, sexual assault, or stalking; or to assist a family member or loved one who is such a victim. The NPRM broadly defines the relations for whom an employee may use paid sick leave to include the employee’s child, parent, spouse, domestic partner, or “any other individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship.”

An employee who wants to use accrued paid sick leave should make a request at least 7 calendar days in advance, if the need for leave is foreseeable, or as soon as practicable if the need is not foreseeable. The employer can require that the employee provide information to establish that the absence qualifies for paid sick leave, and if feasible, the anticipated duration of the leave. However, the employer may not require certification from a health care provider or documentation to prove a claim of domestic violence, sexual assault, or stalking unless the employee uses 3 or more full days of leave consecutively.

The DOL will publish a notice that employers must post notifying their employees of their rights to paid sick leave. In addition, the NPRM requires that employers notify their employees of their accrued paid sick leave balances at least once a month, as well as whenever the employee asks for that information or asks to use paid sick leave and when the employment is terminated.

Federal contractors should review their leave policies now to minimize any conflicts with the EO’s requirements and to prepare for the EO’s implementation in 2017.

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