The U.S. Department of Labor (DOL) has published a final rule updating regulations under the Fair Labor Standards Act (FLSA) and Portal-to-Portal Act. At least as significant, the DOL has declined to adopt many of the proposed regulations it issued in 2008, including regarding the “fluctuating workweek” method of calculating overtime compensation for salaried nonexempt employees.

The rule—which was published in the Federal Register on April 5, 2011, and takes effect on May 5, 2011—addresses the federal tip credit, tip pools, and employees in fire protection activities.

The tip credit allows an employer to pay tipped employees a sub-minimum wage, provided that the wage and the employee’s tips together equal the minimum wage. Currently, an employer may claim a maximum tip credit of $4.42 per hour; under the new rule, that credit will be $5.12 per hour. The rule also ensures that employees will receive advance notice of the employer’s use of the tip credit and how the employer calculates it. Further, the rule amends the FLSA regulations “to make clear that tips are the property of the employee, and that section 3(m) sets forth the only permitted uses of an employee’s tips—either through a tip credit or a valid tip pool—whether or not the employer has elected the tip credit.”

Regarding tip pools, the rule permits mandatory tip pools without a cap on the maximum contribution percentage, but only among those employees who “customarily and regularly receive tips” and only when the employer (1) notifies employees of any required tip pool contribution amount, (2) takes a tip credit only for the amount of tips each employee ultimately receives, and (3) does not retain any of the employees’ tips for any other purpose.

The final rule also clarifies overtime exemptions for employees engaged in fire protection activities. In 1999, Congress amended Section 3 of the FLSA by defining an “employee in fire protection activities” as follows:

An employee, including a firefighter, paramedic, emergency medical technician, rescue worker, ambulance personnel, or hazardous material worker, who—(1) is trained in fire suppression, has the legal authority and responsibility to engage in fire suppression, and is employed by a fire department of a municipality, county, fire district, or State; and (2) is engaged in the prevention, control, and extinguishment of fires or response to emergency situations where life, property, or the environment is at risk. (29 U.S.C. 203(y))

The final rule substitutes this definition for the current, four-part regulatory definition. Moreover, in the new rule, those who meet this definition are no longer included among the exempt employees who may spend only up to 20 percent of their working time in nonexempt work. The 20 percent tolerance will now affect law enforcement personnel only.

As noted above, the DOL chose not to include many of the proposed regulations it issued in 2008 under the Bush administration.

One rejected proposal would have amended regulations on the “fluctuating workweek” method of calculating overtime compensation for salaried nonexempt employees. Currently, when these employees’ hours vary week to week, employers may pay an overtime rate of one-half the regular hourly rate for the week, instead of the usual, 1.5 of the regular hourly rate. Under the proposal, bonus or premium payments would have been included in calculating the regular rate. Critics said that would have caused employers to reduce fixed weekly salaries and shift the bulk of wages to bonus and premium pay.

Also rejected was a proposal to allow public-sector employers to grant compensatory time requested “within a reasonable period” of the request, instead of on the specific dates requested. The final rule left the regulations unchanged, “consistent with [the DOL’s] longstanding position that employees are entitled to use compensatory time on the date requested absent undue disruption to the agency.”

The DOL also declined to allow for service managers, service writers, service advisers, and service salesmen to qualify for an overtime exemption, along with sellers of boats, trailers, or aircraft; partsmen; and mechanics servicing trailers or aircraft who currently qualify for such an exemption under the FLSA.

Finally, the DOL declined a proposal to permit an employer to count the reasonable cost of a meal it furnishes to an employee toward the employee’s minimum wage, whether acceptance of the meal is voluntary or not.

If you have concerns about how the final rule might affect your operations or have any other FLSA-related questions, contact Steven W. Suflas, 856.761.3466 or, or any other member of Ballard Spahr’s Labor and Employment Group.




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