Agenda. Controlling Wage & Hour Claims 2016 HFTP Club & Hotel Controllers Conference 6/15/2016. Kara M. Maciel /

Size: px
Start display at page:

Download "Agenda. Controlling Wage & Hour Claims 2016 HFTP Club & Hotel Controllers Conference 6/15/2016. Kara M. Maciel /"

Transcription

1 Controlling Wage & Hour Claims 2016 HFTP Club & Hotel Controllers Conference Kara M. Maciel, Esq. Chair, Labor & Employment Practice Group Kara M. Maciel / Kara Maciel is the Chair, Labor Employment Practice at Conn Maciel Carey, where she represents employers in all aspects of the employment relationship: Defends employers in litigation at both the federal and state levels, including matters related to ADA, FLSA, FMLA, Title VII and affirmative action/ofccp regulations Counsels employers on compliance with federal and state law, including issues related to hiring, discipline, internal investigations, and termination Special attention to legal issues in the hospitality industry, including Clubs, hotels, restaurants, and spas Agenda Federal Wage & Hour Overview in Hospitality Increase in FLSA Litigation & DOL Enforcement Changes to the White Collar Exemptions Top Wage & Hour Mistakes 3 1

2 Federal Wage & Hour Overview in Hospitality Treatment of Tipped Employees 5 Tipped Employees and the FLSA Tipped Employees customarily receive more than $30 per month in tips for services provided to customers. 29 U.S.C. 203(t). 6 2

3 Tip Credits Section 203(m) of the FLSA allows an employer to pay less than the minimum wage to tippedemployees through the tip credit. Check state law on the wage rate for tip credit as it varies by state. 7 Tip Credit Requirements 4 11 Tips 3 2 Before using the tip credit, an employer must provide the following information to a tipped employee: 1. The wage amount the employee will be receiving (at least $2.13 per hour); 2. The amount the employer will claim as a tip credit (cannot exceed $5.12 per hour); 3. That the tip credit claimed by the employer cannot exceed the amount of tips received by the employee; and 4. That all tips received by the employee are to be retained by him, except to the extent he participates in a valid tip pooling arrangement. 8 Tip Credit and the 20% Rule Rule: Tipped employees cannot perform nontipped duties for more than 20% of their shift 9 3

4 Tip Pooling A tip pool occurs when tipped employees are required to pool a portion of their tips together, and then divide and redistribute the pooled money according to a pre arranged system. To implement a valid tip pool: Employer must notify the employee of the tip pooling arrangement and of any required tip pool contribution amount. Employer cannot require an employee to pay more into the pool than is customary and reasonable. Employer cannot keep any of the tips collected by the employees, and the tips must be distributed to the appropriate employees. 10 Who Can Participate in a Tip Pool? Non exempt employees who regularly and customarily receive tips 11 Who Cannot Participate in a Tip Pool? Persons who do not customarily and regularly receive tips cannot participate in tip pools. DOL Regulations state that back of the house staff cannot participate in tip pools e.g., chefs, cooks, and dishwashers. Examples of other persons who cannot share in tips: Employers and Managers and Individuals with the power to: o Hire and fire o Supervise, plan schedules, or control conditions of employment o Determine employee s pay 12 4

5 Steps for Compliance with the FLSA 13 Service Charges and Proper Disclosures 14 Service Charges vs. Tips The FLSA regulates service charges, but distinguishes them from tips. Tips are a sum paid by a customer as a gift or gratuity in recognition of a service that was performed. Service Charges are a minimum fee that establishments in the service industry may charge customers for large parties or special arrangements. Service charges differ from tips in several major respects. No customer discretion It belongs to the employer It is not counted as tips Customers often assume that servers earn this fee as a their tip, but this is often not the case. Service charges may actually discourage patrons from leaving tips 15 5

6 Disclosures of Service Charges Mandatory service charges should be (i) directly paid to employees; or (ii) notice should be provided to customers that the money is not going to the employee. Several lawsuits have resulted in an employer s failure to follow these requirements. Many states have strict laws relating to disclosure of service charges. Should be factored into regular rate of pay 16 Disclosures of Service Charges Banquet, catering menus, BEO s and contracts must include language explaining who will receive (and retain) gratuity, service charge, and other fees. Each fee should be listed as separate line item. To avoid costly lawsuits, transparency is the best policy! $ 17 Automatic Gratuity Compliance 18 6

7 IRS Treatment of Automatic Gratuities Since January 2014, the IRS will enforce its treatment of automatic gratuities as service charges for purposes of taxation. Gratuity will only be considered a tip if: o The payment is made free from compulsion; o The customer has an unrestricted right to determine the amount of the payment; o The payment is not the subject of negotiation or dictated by employer policy; and o Generally, the customer has the right to determine who receives the payment. If customer does not use its discretion, gratuity will be considered service charge and taxed as regular wages. 19 Repercussions for Employers Can complicate payroll accounting by varying daily wage and overtime pay Diminishes the value of income tax credit More paperwork Cannot use a service charge towards tip credit to supplement difference between set hourly and minimum wages 20 Recommendations for Compliance Evaluate whether any practice in your current system would constitute an automatic gratuity as characterized by the 2012 IRS Ruling; Treat automatic gratuities as service charges or non tip wages for purposes of calculating regular rate of pay, overtime wages, and tax liability; Be explicit with customers as to what increased food prices and/or surcharges cover inform them if tipping is no longer required. 21 7

8 New Changes to the Federal White Collar Exemptions Changes to the White Collar Exemptions The DOL s final regulations to revise the white collar exemptions under the Fair Labor Standards Act were released on May 18, Review of Proposed Changes Effective December 1, 2016, the final rule will more than double the minimum salary threshold for exempt status. $23, $47, per year 24 8

9 Review of Proposed Changes Final rule calls for an triennial rise in the minimum salary threshold First increase would be January 1, 2020 projected to be $51, Duties test remains unchanged despite request for comment Did not identify exactly what the new test would entail or give industry much opportunity to comment on the potential revisions 25 Impact of Final Rule Many low level managers and assistant managers may automatically be disqualified from exempt status unless their salaries are raised to meet the new salary minimum, significantly increasing employers labor costs. 26 Solutions for Clubs Audit the exempt classifications of the current workforce to ensure they meet the current requirements; Pay special attention to those who are close to the salary threshold and those who hold assistant manager or supervisor type positions; and Review policies regarding overtime and hourly tracking systems as a result of the increased number of employees who will be entitled to overtime. 27 9

10 Increase in FLSA Litigation and DOL Enforcement Significant Increase in Litigation/Enforcement Wage and Hour claims are the most frequently filed employment related class action lawsuits Wage and Hour class/collective actions exceed all other types of employment class actions combined Significant Increase in Litigation/Enforcement Number of Wage & Hour Lawsuits filed in Federal Courts 10

11 U.S. Department of Labor Investigations: ,185 complaints filed $2.33 Billion in back wages On average, 10,000 cases annually DOL has spent over $14 million to combat improper classification of workers as independent contractors. Top Wage & Hour Mistakes & Solutions to Fix Them Misclassification of Contractors Why pay overtime we can just make workers an independent contractor, right? DOL Misclassification Initiative: DOL, in partnership with the IRS, is strongly scrutinizing independent contractor relationships. Any potential tax benefit outweighs the costs of legal exposure for back wages, overtime, taxes and penalties 11

12 DOL Guidance on Misclassification of Independent Contractors July 15, 2015: DOL issued guidance saying that most workers qualify as employees under FLSA Expansive definition of employment, including: Performing integral functions Working just for you Nature and degree of employer s control** Suffer or permit to work test Economic Realities test Solutions to IC Problems Review worker s activities Audit worker s activities to ensure a true IC relationship Club exercising a significant amount of control in practice when agreement specifies contractor control of method or means Evaluate worker s independence Worker should not be economically dependent on the Club Revisit Contractor Agreements Address duration and expected outcome of the contract IC should be responsible for providing own equipment and there should be little oversight of the work Consider adding arbitration agreement with a class action waiver due to recent increases in litigation Misclassifying Employees as Exempt What type of Employee May be Exempt? Executive Administrative Professional Outside Sales Certain computer related workers 12

13 Salary Basis Test With certain exceptions, exempt employees must be paid a salary (not hourly) A pre determined amount, not subject to reduction because of variations in quantity/quality of the work performed Must be at least $47,476/year, $913/wk. Deductions, or docking, from salary are limited Primary Duty Test Executive Primary duty is the management of the enterprise or a customarily recognized department or subdivision; and, Customarily and regularly directs the work of 2 or more full time employees; Such direction must include the authority to hire/fire, or where suggestions and recommendations as to hiring/firing/promotion or other change of status is given particular weight Administrative Primary duty is the performance of office work directly related to the management or general business operations of the employer or the employer s customers; and Whose primary duty includes the exercise of discretion and independent 38 judgment with respect to matters of significance Primary Duty Test Outside Sales Primary duty is making sales or obtaining orders or contracts which is customarily and regularly engaged away from the employer s place of business (not required to be paid on a salary basis) Highly Compensated Workers earning at least $134K Must perform office or non manual work Only needs to perform any one of the exempt duties identified in the standard tests for executive, administrative or professional exemptions 13

14 Solutions for Clubs Review job descriptions and actual duties of each exempt employee to support the classification In offer letters, make clear whether the person is eligible for OT or not Explain how wages and OT are calculated upon hire commissions, bonuses, etc. Consider arbitration agreements with class action waivers to limit liability 40 Not Paying for Time on Phones / Social Media After Hours Do you allow your employees to use the Club s account or social media on their personal phones? Remember: Answering business s / promoting the Club is work. If the employee is non exempt, he or she must be paid for this time. FLSA s Application to Smartphones DOL s Spring 2015 Regulatory Agenda RFI forthcoming on the use of technology away from the workplace and outside of scheduled hours Sparked great interest among lawyers Precisely what, if any regulations the DOL will put out on this front is still unclear. 14

15 Misunderstanding Regular Rate of Pay for Overtime An employee s overtime rate is simply time and a hour their hourly rate. Law: An employer s overtime rate is based on their regular rate of pay not their hourly rate. Most forms of non discretionary earnings, such as commissions and bonuses, must be included to determine regular rate of pay. If an employee works in two or more positions for which different wage rates are paid, a weighted average must be applied. 43 Solutions to Avoid DOL Audit and Class Action Liability Keep accurate records Conduct a Wage Hour Audit with counsel Review your classifications for exempt status analysis (individual vs. group wise basis) Ensure your HR professionals are well educated on federal wage/hour laws and state specific variations Review your independent contractor classifications and agreements Correct misclassifications now! Solutions to Avoid DOL Audit and Class Action Liability Implement a policy prohibiting supervisors from requiring or permitting off the clock work and barring employees from doing so Audit payroll practices to ensure no automatic recording of lunches without proof of actual lack of duties Have non exempt employees accurately record all time worked, whether at workplace or not, and confirm accuracy of time sheets each workweek Train managers on handling the non exempt employee who frequently logs in from home or uses the Smartphone afterhours 15

16 Questions 46 Legal Resources Stay Up To Date and in Compliance with FLSA and State W&H Laws With the help of: & Toolkit for Managing DOL Investigations 47 Presented By: Kara M. Maciel Chair, Labor Employment Conn Maciel Carey PLLC