Federal Contractor Minimum Wage and Final Tip Rules

Minimum Wage

Beginning January 30, 2022, the minimum wage for work performed on or in connection with covered federal contracts will increase to $15.00 per hour. The minimum base wage for covered tipped employees will be $10.50 per hour.

Here’s a helpful FAQ

80/20 Tip Credit Rule Restored

The Department of Labor’s (DOL) tip rule has been in limbo for the last year, but as of December 28, 2021, a new rule is in effect. This rule only applies in states where tip credits are allowed. In the rule, the DOL makes it clear that an employer may only take a tip credit when its tipped employees perform work that is part of the employee’s tipped occupation. Work that is part of the tipped occupation includes work that produces tips as well as work that directly supports tip-producing work, provided that the directly supporting work is not performed for a substantial amount of time.

The DOL gives some useful examples of work that would be considered part of the employee’s tipped occupation and work that would not be considered part of their tipped occupation.

  • A server providing table service, such as taking orders, making recommendations, and serving food and drink — YES. That server preparing food, including salads, and cleaning the kitchen or bathrooms — NO.
  • A bartender making and serving drinks, talking to customers at the bar and, if the bar includes food service, serving food to customers — YES. That bartender cleaning the dining room or bathroom — NO.
  • A nail technician performing manicures and pedicures and assisting the patron to select the type of service — YES. That nail tech ordering supplies for the salon — NO.
  • A busser assisting servers with their tip-producing work for customers, such as table service, including filling water glasses, clearing dishes from tables, fetching and delivering items to and from tables, and bussing tables, including changing linens and setting tables — YES. That busser cleaning the kitchen or bathrooms — NO.
  • A parking attendant parking and retrieving cars and moving cars to retrieve a car at the request of customer — YES. That parking attendant servicing vehicles — NO.
  • A hotel housekeeper cleaning hotel rooms — YES. That housekeeper cleaning non-residential parts of a hotel, such as the exercise room, restaurant, and meeting rooms — NO.
  • A hotel bellhop assisting customers with their luggage — YES. That bellhop retrieving room service trays from guest rooms — NO.

In addition to work that produces tips (like the YES examples above), employees often perform work that is directly supporting their tip-producing work. For example, a server’s directly supporting work includes dining room prep, such as refilling salt and pepper shakers and ketchup bottles, rolling silverware, folding napkins, sweeping or vacuuming under tables in the dining area, and setting and bussing tables. Employers can take a tip credit when employee are doing directly supporting work up to a limit — once an employee spends a substantial amount of time on directly supporting work, the DOL considers them to be no longer engaged in their tipped occupation.

A substantial amount of time is defined as more than either 20% of the employee’s hours worked in a workweek while the employer is taking a tip credit or 30 continuous minutes. Once an employee has done directly supporting work for a substantial amount of time, the employer must stop taking a tip credit until the employee resumes clearly tip-producing activities.

Work that does not directly support their tip-producing work (such as the “NO” examples above) must always be paid without a tip credit.

You can read the rule and a lengthy explanation of how the DOL arrived where it did. To find examples of how to calculate the amount of time that can be spent on directly supporting work while still applying a tip credit, search the linked document (the rule) for “5 hours.” 

Juneteenth Becomes a Federal Holiday

President Biden has made Juneteenth (June 19) a federal holiday to commemorate the end of slavery in the United States.

Private employers may choose to close for the day or offer premium pay, but no federal law requires that they do so. Some employers in Massachusetts, however, are already subject to work and pay requirements on Juneteenth. See the MA Holidays Laws page for more information.

Federal contractors and employers that are subject to prevailing wage laws should refer to their contracts to determine their obligations.

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Department of Labor Revises FFCRA Rules

In response to a court ruling in early August that invalidated certain regulations by the U.S. Department of Labor (DOL) related to leave under the Families First Coronavirus Response Act (FFCRA), the DOL has released revised regulations, which took effect September 16. The changes, or lack of changes, are outlined below. 

Definition of Health Care Provider

The definition of health care provider, for purposes of whom an employer can deny leave to, is revised to include physicians and others who make medical diagnoses (the same as under traditional FMLA); employees who provide diagnostic services, preventive services, treatment services, or other services necessary for patient care; and employees who provide services that, if not provided, would adversely affect patient care.

This definition is narrower than in the previous rule. For example, nurse assistants and laboratory technicians who process test results are considered health care providers, but IT workers at a hospital and medical billers are not.

Documentation Prior to Leave

Employers may require that employees provide documentation to support their need for leave as soon as practicable.

The former rule said that employers could require documentation before the leave started, which isn’t always practical.

Leave During a Furlough or Business Closure

Emergency Paid Sick Leave (EPSL) and Emergency FMLA (EFMLA) are still available only if an employer has work available for them during the time that they need the leave.

This is the same rule as before; the DOL just explained its reasoning.

Approval for Intermittent Leave for Childcare

Employees still must get approval from their employer to use intermittent leave. However, the DOL has made it clear that leave is not considered intermittent if a school or daycare is closed on certain days or half days. For example, if the employee’s child’s school has a hybrid schedule with in-person classes on Tuesdays and Thursdays, but remote learning on Mondays, Wednesdays, and Fridays, then the employee would need leave on Mondays, Wednesdays, and Fridays, with each day being a separate leave event. In other words, the employee is not requesting intermittent leave in this scenario, so they do not need their employer’s consent.

This is the same rule as before; the DOL just explained its reasoning and clarified some aspects of the rule.

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FFCRA Leave – Significant Rule Changes

A federal court in New York recently struck down four federal Department of Labor rules related to the leaves provided by the Families First Coronavirus Response Act (FFCRA). As a result, certain aspects of the FFCRA are now more favorable to employees. Unfortunately, it’s not clear if the ruling applies nationwide or only in the Southern District of New York, where the court is located. Until there is further activity in the case—which may clarify whether the rules remain intact throughout the rest of the country—we recommend that employers err on the side of caution when administering FFCRA leaves and assume these particular rules no longer apply.

What is clear is that these four rules definitely do not apply to the counties of Bronx, Dutchess, New York, Orange, Putnam, Rockland, Sullivan, and Westchester (i.e., the Southern District of New York).

Here are the rules that the court invalidated:

The requirement that work be available for an employee to use leave

  1. DOL Rule: The DOL said that for an employee to use Emergency Paid Sick Leave (EPSL) or Emergency Family Medical Leave (EFMLA, aka EFMLEA), the employer had to have work available for them during the time they needed leave. For instance, if an employee was furloughed while sick with COVID-19, they would not be eligible for EPSL.
  2. The Court’s Ruling: Availability of work is irrelevant. If an employee is still employed, whether on the schedule or not, they should be allowed to use FFCRA leave for qualifying reasons.

The requirement that employers agree to intermittent leave

  1. DOL Rule: Employees must get approval from their employer to use intermittent leave to care for their children when their school or place of care is unavailable because of COVID-19.
  2. The Court’s Ruling: If an employee needs intermittent leave (partial weeks or partial days off) to care for their child whose school or place of care is unavailable because of COVID-19, the employer must allow it.

The requirement that employees provide documentation before taking leave

  1. DOL Rule: Employers could require that employees provide certain documentation before being allowed to take FFCRA leave or before designating the leave as EPSL or EFMLA.
  2. The Court’s Ruling: Employers can still require documentation (which is necessary to get their tax credit), but they can’t prevent an employee from starting leave until the documentation is received. The law clearly states that an employee must provide notice “as is practicable” when taking EFMLA and after the first workday of leave when taking EPSL.

The definition of health care provider, for the purpose of exemption from leave

  1. DOL Rule: The DOL defined health care providers very broadly, to include anyone who works for a healthcare entity and many who contract with one. (The rule was so broad that a custodian working at a drugstore or an English professor at a university with a medical school could be exempt.)
  2. The Court’s Ruling: The definition is too broad. However, the court did not provide a new definition. We recommend that employers apply the exemption only to those employees capable of directly providing healthcare services.

We will be watching closely for activity in this case and will let employers know if and when things change or become clearer. 

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Employee FICA Tax – To defer or not defer

President Trump invoked an executive order deferring the withholding, depositing, and payment by employers of the employee portion of social security taxes on August 8, 2020.

This order applies to wages paid for the period between September 1 and December 31, 2020, for employees who receive less than $104,000 per year. The President further asserted he would explore options to forgive these deferred FICA Taxes if he is re-elected.

The deferral period begins in less than one week. However, no Treasury guidance has been issued and no mechanism has been created for employees to elect or for employers to defer the employee FICA tax.

In the absence of any implementation guidance, we are left scrambling to answer employee and employer concerns:

  • Is the deferral optional?
  • How do employers record employee requests for deferrals?
  • Is this entire topic subject to continuing legal challenges?
  • Most importantly, can Washington function in the final months leading up to the election and provide proper guidance to the Tax Preparer community?

Several industry groups have sent letters to Washington requesting guidance. However, the silence is deafening.

As a tax preparer and payroll professional, Contempo HCM advises our clients not to attempt to implement the deferral of FICA Withholding Taxes until further guidance becomes available.

Which will come first, the Guidance or the Election?

HR Tip of the Month – Primary Beneficiary Test

Employers should use a test — called the primary beneficiary test — when determining if a worker can be properly classified as an unpaid intern or if they need to be classified as an employee and paid at least minimum wage and overtime. Before hiring an unpaid intern, employers should consider the following:

  • The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee.
  • The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  • The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  • The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  • The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  • The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  • The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

No single question will disqualify the worker from being classified as an unpaid intern. Instead, the employer should look at the answers as a whole. If in doubt, do not classify the employee as an unpaid intern.

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The New DOL Proposed Overtime Rule

The U.S. Department of Labor has released a Notice of Proposed Rulemaking. This new rule would revise current federal overtime regulations. This notice initiates a 60 day public comment period which allows members of the business community to provide feedback regarding the proposed regulations.

Background

As many business owners may recall, a similar overtime regulation update was initiated by the Obama Administration in 2016. However, a federal judge in Texas struck down the proposed Obama-era federal overtime rule, which would have made more than 4 million exempt employees eligible for overtime pay. As a result, the business community has cautiously anticipated the unveiling of this new 2019 overtime update.

Under this new 2019 DOL proposal, the new salary threshold for exempt-level workers would increase to $35,308 per year or $679 per week. This marks a 49% increase over the current level of $23,660 per year or $455 per week, which was established in 2004. Any employees with salaried amounts less than this threshold will be required to be paid overtime for any hours worked exceeding 40 in a work week.

The proposed 49% salary level increase may seem large to certain business owners. However, this proposed change is far less extreme than the Obama-era proposed previously blocked by the federal court in Texas. By comparison, the Obama-era change, slated to go into effect in 2016 would have doubled the minimum salary amount $47,476 annually or $913 per week.

The Trump administration and the Department of Labor (DOL) have worked to revise regulations concerning overtime in this new proposal. Their work focused on several key topics:

  • Whether to vary the salary threshold on a regional basis?
  • Where the salary threshold should be?
  • Whether the salary threshold should be updated automatically on an annual or multi-year basis?

The resulting 2019 DOL proposal does not vary on a regional basis. It also does not include a plan to automatically update the salary threshold and it does not alter the existing “duties test” regarding exempt level workers. However, the new proposal does allow employers to include commissions and bonuses to make up 10% or less of an employee’s total salary.

Lastly, the DOL would be committed to reviewing this topic every four years. However, any future modifications to the new salary threshold amount would be required to go through the same existing update process.

How does the new DOL proposed overtime rule affect you?

If this update is finalized, employers will be required to:

  • Review the salary levels of all exempt level employees
  • Calculate the cost of increasing the salary to the new threshold amount
  • Compare these new thresholds to the commensurate overtime expenses for hours worked in excess of 40 per week

You can review the Notice of Proposed Rulemaking and access additional resources on the Department of Labor’s website here.