For employers, wage and hour compliance can be considerably complex. Not only are regulations imposed at the federal, state, local level, but they may also be imposed at the industry or even at the union level. To make matters more complex, regulations are constantly changing and do not always agree across the various levels. But it is critical for employers to understand their responsibilities under the applicable wage and hour laws. These laws are in place to protect your staff, and non-compliance with these laws can directly affect your company’s financial health and success.
The main federal wage and hour laws are outlined in the Fair Labor Standards Act (FLSA), including those regulating minimum wage, child labor, overtime, employee classification. All employers are subject to the FLSA, regardless of size.
Employers are required to pay all covered, nonexempt workers a minimum wage of $7.25 per hour all hours worked. For tipped workers, the minimum wage is $2.13; however, employers must ensure the tips these employees receive bring their wage to $7.25 by applying a tip credit of up to $5.12 against the $2.13 wage.
If state, local, or other regulations conflict, you must follow the standard that provides the employee with the greatest benefit. For example, under Massachusetts Minimum Fair Wage Law, employers are required to pay covered, nonexempt workers a minimum wage of $14.25 per hour and tipped workers a minimum of $6.15 per hour. Because the employee’s benefit is greater under the Commonwealth’s law than federal law, employers must adhere to Massachusetts law.
Employers must stay up to date on regulatory changes as well. While federal legislation to increase minimum wage has been slow to progress, many states have initiated their own increases. In Massachusetts, on January 1, 2023, the minimum wage will increase to $15.00 per hour, and the minimum wage for tipped workers will increase to $6.75 per hour. And employers must also pay close attention to other wage and hour-related state and local laws. For example, under Massachusetts’ Grand Bargain Law, retail establishments are not permitted to require any employee to work on New Year’s Day, Veterans Day, Columbus Day, or Sundays, and an employee’s refusal to do may not be considered “grounds for discrimination, dismissal, discharge, reduction in hours, or any other penalty.”
The FLSA includes regulations for child labor, including the restriction of allowable working hours and guidelines on hazardous occupations that are too dangerous for young workers to perform.
Under the FSLA, 14 and 15 year-olds may not work:
- During school hours, unless the work is performed as part of a Work Experience and Career Exploration Program or Work-Study Program.
- Before 7 AM or after 7 PM; however, the youth employee may work until 9 PM if the work is performed from June 1st through Labor Day.
- More than three hours per day on a school day.
- More than eight hours a day on a non-school day.
- More than 18 hours per week during a school week.
- More than 40 hours per week during a non-school week.
A list of hazardous occupations may be found on the Wage & Hour Division’s Child Labor Bulletin 101.
State and local laws often differ. In addition to federal child labor restrictions, under Massachusetts Child Labor Laws, 14 and 15 year-olds may not work more than 8 hours on any weekend or holiday, nor may they work more than 6 days per week. Massachusetts employers are also required to have Youth Employment Permits on file for all workers under the age of 18. While federal regulations address those under the age of 16, the Commonwealth also outlines the regulations specific to those 16 or 17 years of age. Massachusetts also breaks down hazardous occupations by age group.
Employers must pay an employee overtime pay at a rate of 1.5 times the regular rate of pay for all hours worked over 40 hours in a workweek. To determine the regular rate of pay, employers must calculate the employee’s weekly compensation, which may include commissions and non-discretionary bonuses in addition to hourly pay, and divide the amount by the hours worked in that week.
Particularly in the restaurant industry, employers often have to calculate overtime based on multiple pay rates. While using the employee’s highest rate of pay is considered the easiest method, it comes at a higher cost for the employer. A more cost-effective method for calculating overtime is the blended method, in which the employer combines the employee’s pay rates to determine an average pay rate to use in calculating the employee’s overtime.
Another challenge specific to the restaurant industry is calculating overtime for tipped employees. When tipped employees earn overtime pay, some employers make the mistake of multiplying the tipped minimum wage by 1.5 to calculate the overtime hourly rate. However, the correct method is to multiply 1.5 by the full minimum wage, then subtract the tip credit to find the hourly overtime rate.
There are a number of other scenarios that often make calculating wages and overtime more challenging for employers, such as non-discretionary pay, travel time pay, and on-call pay. For example, if you promise an employee non-discretionary pay, such as a sign-on bonus, and the employee works overtime during the bonus period, you will need to add the weekly bonus amount to the employee’s regular pay rate to determine how much additional overtime pay is required.
Under the Massachusetts’ Blue Laws, most retailers with more than seven employees (including the owner) are required to pay non-executive, non-administrative, and non-professional employees a premium rate for hours worked on any Sunday. The premium pay scale was implemented in 2018 at a rate of 1.5 times an employees’ regular pay rate; however, the premium pay scale phases down one decimal point per year until it is eliminated in 2023. The Sunday premium pay rate for 2022 is 1.1 times an employees’ regular pay rate. For the purposes of calculating overtime, Massachusetts employers do not have to include holiday pay in the employee’s 40 hours, as hours that are worked on Sunday do not meet the federal overtime pay requirement.
Overtime & Employee/Contractor Classification
Not all workers are employees, nor are they all eligible for overtime. Workers must be classified as non-exempt employees, exempt employees, or independent contractors.
Nonexempt employees earn an hourly wage. Under the Fair Labor Standards Act (FLSA), if an eligible employee works more than 40 hours during a standard workweek, the employer must pay an overtime rate of one-and-a-half times the employee’s regular rate of pay for those hours.
Exempt employees are not eligible for overtime. Exemption generally only applies to employees who hold professional roles that require a higher level of expertise and knowledge, such as executives, administrative employees, and professional staff. Employees paid by salary are exempt, as long as they are entitled to a monthly base pay higher than the FLSA minimum threshold, regardless of the number of hours of work during their workweek. The minimum salary threshold of the FLSA is reevaluated and may change every year, so it’s important for employers to stay up to date on the related regulations. For 2022, the minimum earnings thresholds for exemption remain at $684 per week or $35,568 per year.
Each state has its own minimum earnings thresholds for exemption as well. In Massachusetts, the minimum earnings thresholds for exemption are currently aligned with the federal thresholds. Employers that are covered by both state and federal law must comply with the law that sets the higher standard of protection for employees.
To determine whether a worker is an independent contractor, employers should follow the DOL’s final rule issued 2021. The final rule has had a rocky journey with several phases of uncertainty; however, as of March 14, 2022, a Texas court vacated the previous decision to withdraw the final rule, which means employers should follow these guidelines.
In addition, there may be other applicable state, local, and industry-specific considerations. For example, Massachusetts is very specific in defining what constitutes a “wait staff employee” in the restaurant industry. In 2020, the Commonwealth updated its definition of “wait staff employee” to include “a waiter, waitress, bus person, person in a quick service restaurant who prepares or serves food or beverages as part of a team of counter staff or any other counter employee who: (i) serves beverages or prepared food directly to patrons or who clears patrons’ tables; (ii) works in a restaurant, banquet facility or other place where prepared food or beverages are served; and (iii) has no managerial responsibility during a day in which the person serves beverages or prepared food or clears patrons’ tables.”
Additional Considerations & Resources
In addition to the wage and hour laws in the FSLA, employers must also adhere to the Family and Medical Leave Act (FMLA) and Equal Employment Opportunity Commission (EEOC). Employers with 15 or more employees are subject to the American with Disabilities Act (ADA), employers with more than 10 employees are subject to the Occupational Safety and Health Act (OSHA), and employers with more than 50 employees are subject to the Affordable Care Act (ACA).
Employers must also ensure they have all appropriate wage and hour posters properly displayed.
The US DOL’s Wage & Hour Division also offers compliance assistance toolkits to help employers evaluate and correct compliance risks.
Employers must keep accurate, up-to-date employee time and payroll records to protect themselves and their employees and to remain in compliance with DOL regulations. The professionals at Commonwealth Payroll & HR are here to help make your HR and payroll operations frustration-free, organized, and compliant with regulatory requirements. Contact Commonwealth today to find out how we can help you navigate wage and hour compliance.
*The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information is for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information. This article contains links to other third-party websites provided only for the convenience of the reader.