WAGE AND HOUR ISSUES - Minimum Wage

Paul R. Beshears
July 12, 2006 — 4,869 views  
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Minimum Wage Requirements

The express purpose of the FLSA is “to enable a substantial portion of the American work force to maintain a minimum standard of living.” Brennan v. Heard, 491 F.2d 1, 3 -4 (5th Cir. 1974) citing Brooklyn Savings Bank v. O'Neil, 324 U.S. 697, 706-707 (1945). To that end, Congress included in the FLSA a requirement that employers pay to each employee an hourly minimum wage. 29 U.S.C. § 206(a)(1). Employers are required to pay this rate to employees who, in any workweek, are engaged “in commerce or in the production of goods for commerce.” 29 U.S.C. § 206(a).

A. How Payments May Be Made

Employers may pay minimum wages by (1) cash or negotiable instrument payable at par or (2) furnishing board, lodging, or other facilities. 29 C.F.R. § 531.27. Specifically, employers may not use “[s]crip, tokens, credit cards, ‘dope checks,’ coupons, and similar devices” to pay minimum wage. Employers must pay the minimum wages finally without “kickbacks,” and employees must receive minimum wages unconditionally or “free and clear.” 29 C.F.R. § 531.35.

1. Board, Lodging, and Other Facilities
Employers may count the “reasonable cost” of furnishing board, lodging, or other facilities toward the payment of minimum wage. 29 U.S.C. § 203(m). The Secretary of Labor, in its discretion, may determine the “fair value” of the board, lodging, or other facilities based on an average cost to an employer, an average value to an employee, or other appropriate measure. 29 U.S.C. § 203(m). Employers may consider the board, lodging, or other facility as payment of minimum wage whether it is furnished in addition to, or deducted from a stipulated wage. 29 C.F.R. § 531.29.

In order for an employer to consider the board, lodging, or other facility as payment of minimum wage, it must be a benefit that is customarily furnished to the employee. 29 C.F.R. § 531.30. The employee must actually receive the benefit of the board, lodging, or other facility. 29 C.F.R. § 531.30. Finally, the employee must accept the benefit of the board, lodging, or other facility on a voluntary basis and without coercion by the employer. 29 C.F.R. § 531.30.

An employer may also consider a benefit similar to board or lodging as payment of minimum wage. 29 C.F.R. § 531.32(a). Examples of benefits that an employer may consider as other facilities include, but are not limited to, meals furnished at a company restaurant; meals, dormitory room, and tuition furnished by a college to student employees; and fuel furnished for the noncommercial personal use of an employee. 29 C.F.R. § 531.32(a). However, an employer may not consider as payment of minimum wage the cost of furnishing a facility primarily for the benefit or convenience of the employer. 29 C.F.R. § 531.32(b). Examples of benefits that an employer may not consider as payment of minimum wage include safety caps, membership dues to organizations, rental of uniforms where employees are required to wear a uniform to work, and medical services the employer is bound to provide under workmen’s compensation law. 29 C.F.R. § 531.32(b))

An employer may include the “reasonable cost” of furnishing the board, lodging, or other facilities or the “fair value” determined by the Secretary of Labor as payment of minimum wage. 29 U.S.C. § 203(m). The reasonable cost may not exceed the actual cost to the employer and may not include profit to the employer. 29 C.F.R. § 513.3. The employer must be able to provide records to prove the reasonable cost. 29 C.F.R. §§ 516.27(a), 516.28(b). To determine the value of the board, lodging, or other facilities to include as wages, an employer may (1) calculate the reasonable cost, (2) request a determination of reasonable cost, or (3) request a determination of fair value in lieu of actual cost. 29 C.F.R. § 531.33(a).

2. Payment in Scrip or Other Similar Medium Not Authorized
An employer may not make payment of minimum wage by payment in scrip, (a scrip is a temporary certificate to be exchanged for money) tokens, credit cards, or other similar devices, issued temporarily and to be exchanged for money because they are not considered as cash or board, lodging or other facilities. 29 C.F.R. § 531.34. However, an employer may use such devices to measure wages earned or facilities purchased during a pay period, provided that the employer redeems the devices for cash at the end of the pay period. 29 C.F.R. § 531.34.

3. “Free and Clear” Payment and “Kickbacks”
“Congress has determined that the individual worker should have both the freedom and the responsibility to allocate his minimum wage among competing economic and personal interests.” Brennan, 491 F.2d at 4. Regardless of the form of payment, that is cash, board, lodging, or other facilities, an employer has not paid minimum wage to an employee unless the wage is paid finally and received unconditionally. 29 C.F.R. § 531.35. Thus, an employer must pay wages to an employee so that the wages are “free and clear” for use by the employee. An employer may not require a “kick-back” in wages from an employee; that is, an employer may not require an employee to reimburse the employer in cash in lieu of deducting from the employee’s wages. 29 C.F.R. § 531.35.

B. Calculation of Payment

While an employer must pay minimum wage to an employee, an employer may deduct certain amounts from the wages of an employee. In calculating the final wages to pay an employee, an employer may make certain deductions from wages owed to an employee.

The general rule regarding employer deductions from wages owed to an employee is that an employer may make deductions provided that the employee receives at least the minimum wage. 29 C.F.R. § 531.36. However, the exception to this general rule is that employers may make allowable deductions that result in an employee receiving less than minimum wage. 29 C.F.R. § 531.36. Allowable deductions include meals, lodging, and other facilities furnished for the benefit of the employee. 29 C.F.R. §§ 531.30, 531.31, 531.32. Allowable deductions are limited to the “reasonable cost” to the employer. 29 C.F.R. § 531.36. Thus, an employer may make additional deductions, that is, deductions other than the reasonable cost of meals, lodging, and other facilities, only if the employee receives at least the minimum wage.

An employer must compensate an employee for overtime hours at a rate of at least one and one-half times the regular rate of pay. 29 C.F.R. § 531.37. An employer may make deductions from overtime pay on the same basis as in non-overtime workweeks, provided that the amount deducted does not exceed the amount which could be deducted if the employee had worked the maximum number of straight-time hours during the workweek. 29 C.F.R. § 531.37. For overtime hours worked, an employer must pay an employee at least one and onehalf times the regular rate after deductions. 29 C.F.R. § 531.37.

An employer may make a authorized deduction from the wages owed to an employee even if the resulting final payment the employee receives is less than minimum wage. Authorized deductions include meals, lodging, and other facilities furnished for the benefit of the employee. 29 C.F.R. §§ 531.30, 531.31, 531.32. As defined administratively, authorized deductions also include amounts deducted for taxes, payments to third persons pursuant to court order, and payments to an employee’s assignees. In addition, the courts have included deductions for recovery of money wrongfully taken by the employee and payments for loans or advances within the scope of authorized deductions.

An employer may deduct from the wages owed to an employee amounts that the employee misappropriated. Mayhue’s Stores v. Hodgson, 464 F.2d 1196 (5th Cir. 1972). An employer may also deduct amounts that the employer has loaned or advanced to an employee. Brennan v. Veteran’s Cleaning Service, Inc., 482 F.2d 1362 (5th Cir.1973). An employer may make these deductions even if the wages paid to the employee fall below minimum wage.

An employer may make additional deduction from the wages owed to an employee only if the resulting final payment the employee receives is not less than minimum wage. 29 C.F.R. § 531.36. Common additional deductions include deductions for tools provided by the employer and required for a job, transportation costs incurred primarily for the benefit of the employer, and uniforms and uniform cleaning, if the employer requires an employee to wear the uniform.

C. Payment of Wages to Tipped Employees

An employer may take a tip credit of up to 50% of minimum wage ($2.58) against wages owed to the tipped employee. 29 C.F.R. §§ 531.50(a), 531.59. A tipped employee is one who customarily and regularly receives more than $20 per month in tips. 29 C.F.R. § 531.50(b).

An employer who chooses to use this tip credit provision must inform each tipped employee about the tip credit allowance (including amount to be credited) before the credit is used. 29 U.S.C. § 203(m). In addition, an employer must allow the employee to retain all tips, whether or not the employer elects to take the tip credit, except to the extent that an employee participates in tip pooling. 29 U.S.C. § 203(m). If an employee works for the employer in both  a tipped job and a non-tipped job, the employer may only take a tip credit for the hours during which the employee worked in the tipped job. 29 C.F.R. § 531.56(d).

D. Special Minimum Wages for Workers with Disabilities

An employer may pay wages less than the minimum wage to workers who have disabilities. 29 U.S.C. § 214(c)(1)(A). The wages must be comparable with the wages paid to non-disabled workers in the same vicinity for similar type, quality, and quantity of work, 29 U.S.C. § 214(c)(1)(B), and the wages must be related to the productivity of the disabled individual. 29 U.S.C. § 214(c)(1)(C). A worker who has a disability for the job being performed is one whose earning or productive capacity is impaired by age, physical or mental deficiency, or injury. 29 U.S.C. § 214(c)(1)(A).

Before paying special minimum wages to an employee with a disability for the work being performed, an employer must apply (the application form is Form WH-226-MIS, Application for Authority to Employ Workers with Disabilities at Special Minimum Wages) to the Wage and Hour Division to obtain an authorizing certificate. 29 U.S.C. § 214(c)(1)(A). Employers are required to conduct a review, at periodic intervals of at least two times per year, of the special minimum wage rates. 29 C.F.R. § 525.9(b)(1). An employer must also assure that it will adjust wages for all employees at periodic intervals, of at least once a year, to reflect the prevailing wages paid to experienced non-disabled individuals employed in the locality for similar work. 29 C.F.R. § 525.9(b)(2).

Paul R. Beshears