WPI Wage Watch: Minimum Wage, Tip, and Overtime Developments (November Edition)

Turkeys weren't the only things stuffed in November – there was a gut-busting amount of late-year legislative, regulatory and case law developments at the federal, state, and local levels concerning the minimum wage, tips, and overtime.

Federal Regulatory Developments: On November 4, 2019, the U.S. Department of Labor (DOL) proposed amendments to the Fair Labor Standards Act’s (FLSA) fluctuating workweek (FWW) regulations. According to the DOL, the changes provide clarification by expressly stating that bonuses, premium payments, or other additional pay are compatible with the FWW method of compensation and must be included when calculating the regular rate for overtime purposes (unless a pay item can be excluded from the regular rate), and provide examples to better explain how the FWW works. Generally speaking, the FWW method allows employers to pay non-exempt employees a fixed salary for non-overtime hours and pay overtime hours at a rate not less than one-half – instead of one-and-a-half – times an employee's regular rate. While some employers may welcome DOL action on the FWW, it is important to remember that not all states permit employers to use the FWW method for calculating overtime.

Later in the month, on November 20, the DOL issued its bi-annual regulatory agenda update. Of the 63 items listed, the Wage & Hour Division included seven regulatory priorities, one of which was new: rulemaking concerning FLSA section 3(m), which allows employers to count the reasonable cost of furnishing employees with board, lodging, or other facilities towards payment of the minimum wage.1

State Supreme Court Developments: The Supreme Court of Pennsylvania held an employer could not use the FLSA's FWW method to calculate overtime for non-exempt salaried employees. Instead, employers should calculate the regular rate using actual hours worked and pay all hours in excess of 40 at one-and-a-half times the regular rate, regardless of whether the regular rate was calculated based on actual hours worked.

State Legislative & Regulatory Developments: Because not all developments are equal, we start with the most notable and work our way down in terms of importance.

In Colorado, the state labor department is proposing numerous significant changes to its minimum wage order (i.e., minimum wage and overtime rules). In addition to the proposed name change – Overtime and Minimum Pay Standards Order – the department proposes to increase the number of employers the order covers. Currently, it covers four industries: retail and service; food and beverage; commercial support service; and health and medical. The proposal seeks to cover all employers, unless specifically excluded.

The next most notable Colorado development is the department is seeking to increase the minimum amount an employer must pay an employee to claim the executive/supervisory, administrative, and/or professional employee exemptions. If adopted, the minimum pay would be $817.31 per week ($42,500 annually) beginning on July 1, 2020 and continuing through December 31, 2021. The rate would then increase to $875 per week ($45,500 annual) for 2022, $932.69 per week ($48,500 annual) for 2023, $990.38 per week ($51,500 annual) for 2024, $1,048.08 per week ($54,500 annual) for 2025, and $1,105.77 per week ($57,500 annual) for 2026, with annual increases occurring in 2027 and subsequent years. Currently, an executive or supervisor must earn in excess of the equivalent of the minimum wage for all hours worked in a workweek, and employers must pay administrative and professional employees a salary.

As noted, numerous potential changes are afoot concerning, e.g., rest periods, calculating the regular rate for overtime purposes, meal and lodging credits, and uniforms. The department will hold a public hearing on December 16, 2019. Interested parties must submit public comments by December 31, 2019. Currently, the department anticipates it will adopt a final rule on January 10, 2020, one-and-a-half weeks after the comment deadline. The department currently projects most rules (other than the white-collar pay standards) will take effect on March 1, 2020.

Pennsylvania SB 79 proposes to increase the state minimum wage from $7.25 to $8.00 per hour on July 1, 2020, with further increases occurring on January 1, 2021 ($8.50), July 1, 2021 ($9.00), and January 1, 2022 ($9.50). The bill seeks to require that FLSA standards apply to state minimum wage and overtime requirements unless state law specifies a higher standard. The amendments would create exemptions for highly compensated employees and certain computer employees. Additionally, it would prohibit employers from deducting credit card payment processing fees or costs from tips customers leave employees via a credit card, and require employers to pay credit card tips by the next regular payday following the date the customer left the tip.

SB 79's big-ticket item is its proposed amendments to Pennsylvania’s executive, administrative, and professional employee exemptions. The amendments would have these exemptions align with FLSA standards and allow employers to apply nondiscretionary bonuses, incentives, and commissions toward payment of 10% of the amount employers must pay these employees on a salary or fee basis (i.e., the standard the revised FLSA rules will use beginning January 1, 2020). However, unlike the FLSA, the bill calls for the state to adjust the amount from time to time, beginning January 1, 2023. In the last few weeks, SB 79 progressed swiftly through the state senate. Currently it is in the general assembly. Because of this development, the state labor department withdrew pending revisions to its "white collar" regulations, subject to the department resubmitting the proposed rules should the legislation fail to pass.

In Florida, at the November 2020 election voters will determine the fate of a ballot measure to increase gradually the state minimum wage to $15.00 per hour. Currently, on January 1, 2020, the state minimum wage will increase from $8.46 to $8.56 per hour. The ballot measure seeks to increase the minimum wage to $10.00 per hour on September 30, 2021, and sets a $1 per hour increase each year until the rate reaches $15.00 per hour on September 30, 2026. Afterwards, the state will annually adjust the rate, and the new rate will take effect January 1; however, the first adjustment would not occur until September 30, 2027, so the first annually adjusted rate would not take effect until January 1, 2028.

Ohio HB 391 proposes to increase the state minimum wage to $10.55 per hour beginning in 2021, with annual adjustments in subsequent years. Currently, the rate is set by the Ohio Constitution and the state annually adjusts the rate, e.g., it will increase from $8.55 to $8.70 per hour on January 1, 2020.

In Virginia, a state senator pre-filed for the 2020 legislative session SB 7, which proposes to increase the current $7.25 per hour minimum wage on July 1 to $10.00 (2020), $11.00 (2021), $12.00 (2022), $13.00 (2023), $14.00 (2024), and $15.00 (2025), with the state labor department annually adjusting the applicable rate on July 1, 2026 and then on each subsequent July 1. Additionally, the bill seeks to eliminate the exemption from state minimum wage and overtime requirements for workers whose employment is covered by the FLSA.

Currently, in Massachusetts, employers can exclude commissions, drawing accounts, bonuses, or other incentive pay based on sales or production when calculating an employee's regular rate for overtime purposes. H. 4173 proposes mandating employers include such items, and proposes that for the outside salesperson / buyer exemption from overtime to apply, the individual must not make daily reports or visits to the employer's office or plant.

A sponsor of New Jersey S 3607 pulled the bill from the November 14, 2019 meeting of the state senate's labor committee. The bill includes mechanisms to suspend scheduled minimum wage increases based on decreases in employment and decreases in retail sales and use tax cash receipts.

Local Matters: From the Midwest, across the Rockies, and into the West and Northwest, local governments were busier than airports during the holiday.

Denver became the first city to enact a minimum wage ordinance in Colorado since the state allowed local laws, with the mayor signing the bill on November 27, 2019. Under the ordinance, private employers must pay covered workers the following minimum wage rate on January 1: $12.85 (2020), $14.77 (2021), $15.87 (2022). Beginning January 2023, and each subsequent January, the minimum wage will be annually adjusted based on changes to the consumer price index. For covered tipped employees, employers can apply a maximum tip credit of $3.02 per hour. The law only covers work performed in Denver and does not apply if a worker performs fewer than four hours of work in Denver in a given week (or to independent contractors and volunteers). The law's provisions on penalties and damages are voluminous and contain specific timeframes during which employers must correct violations to reduce liability. Additionally, employers have posting and recordkeeping obligations, employees (or third parties) can file administrative complaints, and employees can file private lawsuits.

In Chicago, Illinois, the city council passed mayor-proposed amendments. Currently, a $13.00 per hour minimum wage rate applies citywide; however, effective July 1, 2020, there will be separate rates for employers with 21 or more employees, employers with four to 20 employees, and for employees younger than 18 years in subsidized temporary youth employment programs and/or subsidized employment programs.2 For employers with 21 or more employees, the rate will be $14.00 and $15.00 per hour, respectively, on July 1, 2020 and 2021, with the rate annually adjusted in subsequent years. For employers with four to 20 employees, the rate will be, on July 1, $13.50 (2020), $14.00 (2021), $14.50 (2022), and $15.00 (2023); beginning July 1, 2024, it will merge with the rate applicable to employers with 21 or more employees. The subsidized employment rate for minors will be, on July 1, $10.00 (2020), $11.00 (2021), $12.00 (2022), $13.50 (2023), and $15.00 (2024); beginning July 1, 2025, it will be annually increased until it hits the rate applicable to other employers. Other notable amendments include the following:

  • Determining whether a worker is an employee or independent contractor will be based on criteria the IRS uses.
  • Exceptions will exist for outside salespeople and individuals working for certain motor carriers.
  • For tipped employees, the law will change from establishing a minimum cash wage (and a de facto maximum tip credit) to establishing a maximum tip credit of 40% of the applicable minimum wage (and a de facto minimum cash wage).
  • Employers of tipped employees will be required to submit to the city enforcement agency evidence establishing the amount of tips received and that no tips reverted to the employers.
  • The enforcement agency must conduct a one-year study that examines the economic impact of tipped wages and the effectiveness of enforcement.

In Northern California's San Francisco Bay Area, Oakland, California announced that on January 1, 2020, the minimum wage under its generally applicable minimum wage ordinance will increase from $13.80 to $14.14 per hour. However, Richmond, California announced that its $15.00 per hour minimum wage will not change on January 1, 2020.

In Tacoma, Washington, File Number 19-1238 proposes to repeal the city's minimum wage (and paid sick leave) law and instead rely on state law. It appears the city council will consider the proposal at its December 10 meeting.

Back to California (and the Bay Area), on November 12 and 18, the city councils of San Carlos and Foster City, California discussed adopting a citywide minimum wage ordinance and provided direction to staff. In Southern California, at the November 5, 2019 election, residents of Rancho Palos Verdes voted against Measure B, which sought to create a citywide minimum wage for large hospitality employers.

During a work session on November 12, the Breckenridge, Colorado Town Council discussed efforts by Summit County to adopt a countywide minimum wage ordinance, and indicated they would not support such a proposal until more information becomes available. Relatedly, in an effort to get stakeholder input, the county put online surveys for employees and business to complete by November 3.

In Eugene, Oregon, voters approved Measure 20-302, which caps the June 2019 city-council-approved payroll tax; caps taxes on what employers pay at 0.44%, and what employees earn at 0.21%.

The city council in Seattle, Washington adopted ordinances relating to transportation network companies (TNC). One ordinance sets minimum compensation standards for TNC drivers, which would apply after the city's Department of Finance and Administrative Services, in coordination with the Office of Labor Standards, conducts an evaluation to determine a minimum compensation standard. Another ordinance seeks to create deactivation protections for TNC drivers. A few days earlier, the city announced a wage study that will collect and analyze data to determine a wage floor for TNC drivers.

The Seattle developments provide businesses a good reminder to be on the lookout for local laws that may apply to specific industries or locations. For example, earlier in November news reports circulated about concerted efforts to raise the minimum wage for workers at airports and hotels.

We will continue to monitor and report on minimum wage and overtime developments as they occur.

See Footnotes

1 To learn more, see Tammy McCutchen, Fall Regulatory Agenda Indicates DOL Wage and Hour Division is Working on Seven Regulatory Priorities, Littler ASAP (Nov. 20, 2019).

2 Different pay requirements may exist to employers operating a work activities center or sheltered workshop who have license / certification issued by federal or state labor officials.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.