The U.S. Department of Labor (“DOL”) has issued three sets of proposed regulations that significantly impact the Hospitality industry. After two years of regulatory inactivity, the DOL’s Wage and Hour Division published three Notices of Proposed Rulemaking (“NPRM”) regarding overtime exemptions, the regular rate, and joint employment under the Federal Labor Standards Act (“FLSA”). The proposals are not final, and require input from the industry so that employers can be assured that the process and the final rules appropriately achieve the correct balance for employers. The rule-making process encourages comments, and the DOL will review and study those comments that are submitted.
On March 7, 2019, the DOL’s Wage and Hour Division proposed to increase the minimum salary for exemption from $455 per week ($23,660 annualized) to $679 per week ($35,308 annualized), and to increase from $100,000 to $147,414 the total amount of annual compensation individuals must receive in order to qualify for the highly compensated employees exemption. Although the proposed increase to the minimum salary level is below the $913 level proposed and enjoined by a Texas court a couple of years ago, the increase may still require employers to significantly revamp their payment structures for some hospitality positions, such as exempt store-level management. The DOL’s proposed increase for the highly compensated test is higher than proposed in 2016, making the less burdensome duties test out of reach for many highly paid corporate administrative employees; hospitality employers will need to ensure that employees earning between $100,000 and $147,414 meet all of the duties requirements for that exemption.
On March 28, 2019, the DOL released a proposal to amend the FLSA regulations to clarify and update regular rate requirements concerning compensation and benefits that employers must include in the overtime calculation.
Under the proposal, examples of the types of pay that must be included in the regular rate, in addition to base hourly wages, include non-discretionary bonuses, commissions and shift differentials. On the other hand, some types of compensation such as employee benefits, business expense reimbursements and discretionary bonuses are excludable from the regular rate.
The DOL is further proposing to confirm that the following types of employer-provided benefits may be excluded from the regular rate of pay:
- Wellness benefits, including gym memberships, fitness classes and on-site specialist treatment;
- Discounts on retail goods and services, such as employer-provided meals;
- Payouts to employees of unused vacation and sick leave;
- Accident, unemployment and legal services benefits; and
- Tuition reimbursement and repayment of student loans.
The DOL also proposes to clarify that payment for hours not worked, including payment for bona fide meal periods and certain types of “call-back” pay are excludable, and that business expense reimbursements may be excludable even if not “solely” for the benefit of the employer.
Finally, the DOL has proposed some new examples of discretionary bonuses that are excludable, such as bonuses paid to employees who make unique or extraordinary efforts that are not awarded according to pre-established criteria; severance bonuses; bonuses for overcoming challenging or stressful situations; and employee-of-the month bonuses.
On April 1, 2019, the DOL released a NRPM on joint employment under the FLSA. The proposed rule would revise the regulations that define when two companies are considered joint employers of the same employee.
The DOL proposes a four-factor test for determining joint employment under the FLSA. The DOL would consider whether the potential joint employer actually exercised the power to:
- Hire or fire the employee;
- Supervise and control the employee’s work schedules or conditions of employment;
- Determine the employee’s rate and method of payment; and
- Maintain the employee’s employment records.
The DOL’s proposal would add language on the impact of contractual obligations and business models that affect many employers in the hospitality industry. For example, hotels and restaurants operating as franchisors would not make joint employer status more or less likely; nor would requiring a business partner to institute workplace safety measures, wage floors, or sexual harassment policies. Also, providing a sample handbook to a franchisee or allowing an employer to operate a facility on one’s premises would not create joint employer status.