BY AMY COOLEY
Crucial but sometimes confusing, the Fair Labor Standards Act (FLSA) sets out federal rules for fair pay practices. This is the legislation that covers topics like minimum wage, overtime pay, exempt or non-exempt status, on-call time, tip credit, hours tracking—many of which can be sticking points in our industry. There are other items included as well, such as child labor and special rules for public sector employees, which are less likely to impact your operation.
So here I’m going to address some of the most common challenges to compliance that may be raising questions for you or opening your business to complaints, which can result in costly lawsuits or fines:
1. Gratuity Rules and Tip Credit
Since most operators have employees who receive tips/gratuities (like your chauffeurs), some choose to set an hourly rate less than the minimum wage, and apply tip credit to account for the difference. However, if the gratuities during any week are not enough to cover the required minimum wage, you as the employer will need to pay the balance. Tip credit also affects how the overtime rate is calculated. Rather than one and half times the hourly rate, it should be one and half times the hourly minimum wage, less the amount of the tip credit. This is easier to illustrate with an example.
Let’s say your state’s minimum wage is ten dollars an hour, and you pay chauffeurs a seven-dollar hourly wage, relying on gratuities to cover the remaining three dollars per hour:
❱ Minimum wage = $10/hour
❱ Hourly rate = $7/hour
❱ Tip Credit = $3/hour
❱ Overtime = (1.5 X $10) - $3 = $12/hour
Reminder: 100 percent of the gratuity/tip MUST be passed through to the chauffeur, even if you are not applying tip credit to meet the minimum wage.
2. On-Call Time: Waiting to be Engaged or Engaged to Wait?
On-call is a frequent arrangement with chauffeurs and sometimes receptionists/dispatchers as well. So how do you understand when an employee needs to be paid for this time? The answer here lies in the question: are they “waiting to be engaged” or “engaged to wait?” It is a subtle but important distinction.
Generally speaking, if the employee is free to spend the time as they wish, including not being required to wait in a specific location, they are waiting to be engaged and you are not required to pay them for that time. For example, a chauffeur who has several hours between a drop-off and the return trip, where they are free to tour the city, go to a movie, go shopping, or whatever they choose to do with that time is “waiting to be engaged” until they get the call to meet their passengers for the return trip.
However, if your employee is restricted in what they do with their time, and/or they must wait in or near a specified location, they are engaged to wait and entitled to be paid for that time. For example, if that same chauffeur is required to stay in or with the vehicle during the wait, they are not actually free to use the time as they choose (even if reading a book, watching videos on their device, etc.). Therefore, they are “engaged to wait” and must be paid.
3. Exempt or Non-Exempt?
It is often assumed that any employee who is paid on a salary basis is exempt from overtime. But this is not the case. While it is true that all exempt employees must be paid on a salary basis, there are additional requirements to meet the standard for overtime exemption. Most of the exemption standards are fairly straightforward, but there is one notoriously gray area—the administrative exemption. This is not an exemption that applies to everyone who works in an office role.
The acid test for the administrative exemption: “The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance” (DOL Wage and Hour Division Fact Sheet #17A).
The National Labor Relations Board tends to take a strict line here. For example, the employee(s) who set your rates and rate guidelines may qualify for exemption, but the reservationist or dispatcher who prices trips according to your established rate sheet and guidelines (even with some discretion) likely does not.
Quick reminder: several states have set their own minimum wage, overtime rules, and other employment guidelines that must be followed. The federal rules apply when there is not a state law on the matter.
Non-compliance can be costly. Miscalculating tip credit or overtime rates, misinterpreting on-call time, or misclassifying employees as exempt can result in paying out sums far higher than the amount of unpaid wages. The good news? A lawyer or HR professional can help you to navigate the complexities in order to remain compliant and reduce your risk. [CD0423]
Amy Cooley is HR leader for The LMC Groups. She can be reached at firstname.lastname@example.org.