Changes Are Coming to Pay and Wage Rules

The changes could dramatically alter how employers in several industries compensate workers.
By: | September 26, 2018 • 3 min read
wage and pay rules changes

Every four years or so (give or take a presidential term), the policies of the U.S. Department of Labor change. When President Trump issued Executive Order 13771 early last year, which directs federal agencies to repeal two existing regulations for each new regulation issued, it seemed like we might have a few quiet years from the DOL and its Wage and Hour Division.

Well, you know what they say about assuming.

Instead of a quiet first year under Secretary of Labor Alexander Acosta, we have had some fast and furious changes that lay the groundwork for changes coming in the next year that could dramatically alter how employers do business in several industries.

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What’s Already Occurred? 

First and foremost, employers in the hospitality industry had a rocky 2018. In December 2017, the DOL published a proposal to revise its 2011 tip regulation and explicitly permit mandatory tip pooling arrangements that include non-customarily tipped employees, provided that the employer does not take the tip credit. In other words, the DOL was about to clarify that, if employees are paid at least the minimum wage, employers can mandate whatever tip-pooling arrangements they would like.

This change was highly controversial because of the potential of an employer being able to redistribute, or not redistribute, tips as it saw fit. Employee advocates (and some news sites) claimed that this regulation would lead to employers “stealing” tips from employees. In March, Congress acted suddenly and decisively. As part of a budget reconciliation bill, Congress amended the Fair Labor Standards Act to provide that an employer (as well as “managers and supervisors”) cannot keep tips for itself for any purpose, regardless of whether it takes the tip credit. Congress further noted that the 2011 regulation from the DOL that prohibited an employer requiring the redistribution of tips to any non-customarily tipped employees under any circumstances “shall have no further force or effect” to the extent that portions do not address Section 3(m) as it existed at the time.

Compliance Focus

The Department of Labor announced in March that it was rolling out its Payroll Audit Independent Determination program, designed to encourage employers to self-report violations of the FLSA, and permitting employers to complete self-audits and make supervised payments, under certain circumstances. Then, just recently it announced the creation of the Office of Compliance Initiatives, an office designed to educate and encourage compliance with the FLSA. At this point, though, it’s hard to say whether the PAID program has had any meaningful success or what the new office will do.

But Wait, There’s More

With everything happening at the DOL in the last six months, it’s hard to believe that we expect a lot more to come in the ensuing months. First, employers with tipped employees can expect the agency to publish new regulations any time now. Presumably, these regulations will clarify Congress’ language in the budget reconciliation bill, but they also could end up doing a lot more. For example, the regulations may either end or clarify the so-called “20 percent rule,” an interpretation creating a tip-credit restriction that has cost billions of dollars in litigation around the country.

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