Labor Department Rule Clarifies Tip Credit

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The Labor Department has updated regulations issued under the Fair Labor Standards Act and the Portal-to-Portal Act to conform them to subsequent legislation, according to a final rule published in the April 5 Federal Register (76 Fed. Reg. 18,832).

The final rule clarifies the tip credit provision but declines to adopt proposals on compensatory time and the fluctuating workweek. The revisions conform the regulations to FLSA amendments passed in 1974, 1977, 1996, 1997, 1998, 1999, 2000, and 2007, and Portal-to-Portal Act amendments passed in 1996. The proposed rule was published in July 2008 (73 Fed. Reg. 43,654; 59 BTM 241, 7/29/08).

The final rule updates the regulations regarding the tip credit to reflect increases in the minimum wage. The tip credit allows an employer to pay tipped employees a wage less than the minimum wage as long as the combination of that amount and the employee's tips equals the minimum wage. The final rule raises the maximum federal tip credit from $4.42 to $5.12 per hour.

The final rule also adopts the proposal's youth opportunity wage provision, which allows an employer to pay a subminimum wage to employees under age 20 during their first 90 calendar days of work.

Compensatory Time Off, Fluctuating Workweek

The department decided not to adopt its proposed changes to regulations governing compensatory time off. In 1985, Congress added section 7(o) to the FLSA to permit states and local governments to grant employees compensatory time off instead of cash overtime compensation pursuant to an agreement with the employees or their representatives.

The department consistently has interpreted its regulations as requiring that an employee's request for compensatory time on a specific date must be granted unless doing so would unduly disrupt the agency's operations. Because two U.S. courts of appeal concluded otherwise, the department proposed adding a sentence to Section 553.25(c) stating that a state or local government need not allow the use of compensatory time on the day specifically requested but merely must permit the use of the time within a reasonable period after the employee makes the request.

However, since the proposed rule was published, two other appeals courts have upheld DOL's interpretation. Consequently, the department decided not to adopt the proposal, but to leave the current regulation unchanged.

The proposed regulation also provided that bona fide bonus or premium payments do not invalidate the fluctuating workweek method of compensation but that such payments must be included in the calculation of the regular rate unless they are otherwise excluded. The final rule restores the current rule requiring payment of the fixed salary amount as the straight time pay for whatever hours are worked in the workweek.

The text of the final rule can be accessed at

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