Pressure continues to mount for raising the federal Fair Labor Standards Act's minimum wage in three stages from the current $7.25 per hour to (so far) $10.10 per hour.  Under pending proposals, the rate would thereafter be subject to annual increases linked to rises in the Consumer Price Index.

Leaving aside for now questions about the wisdom of these measures, history suggests that Congressional negotiations are or soon will be underway to strike a bargain – one under which the increases will be passed in exchange for something that ostensibly alleviates some of the impact upon employers.  Experience also counsels vigilance in the interests of steering these discussions toward a tradeoff that actually has value.

The Past Should Not Be Prologue

A good example of what not to do is found in the gimmick that was proudly held up as a worthwhile exchange for the minimum-wage increases beginning in 1990.  This "training wage" temporarily allowed employers to pay 85% of the FLSA minimum wage for up to 90 days to workers less than 20 years old under a variety of restrictions and conditions.  The employee could be paid the training wage for another 90 days by a different employer under certain circumstances.

This exception was soon hamstrung by complicated U.S. Labor Department rules consuming more than 9,000 words, 41 sections, and over 15 pages in the Code of Federal Regulations.  By the time the "training wage" expired in 1993, whatever limited utility it might otherwise have had was entirely undercut by what one large employer referred to as an "administrative nightmare".

A similar provision was part of the agreement for minimum-wage hikes that began in 1996.  We have addressed the still-existing "opportunity wage" elsewhere; suffice it to say that this too has been ineffectual.

Address Matters Of Substance Instead

If there is to be a deal, especially a groundbreaking one that puts future increases on "autopilot", then it should consist of truly meaningful FLSA reform.  There are many worthy possibilities, but some we have discussed before include:

An amendment creating at least a presumption of accuracy for time records kept by non-exempt employees under a clear employer procedure requiring and facilitating accurate timekeeping;

A revision allowing employees to be deemed exempt from the FLSA's minimum-wage, overtime, and timekeeping requirements based simply upon their being paid compensation beyond a specific threshold;

A modification excluding many, most, or even all bonuses and incentive pay from the "regular rate of pay" used to compute FLSA overtime compensation; and

Raising the annual-dollar-volume threshold for FLSA "enterprise" coverage to a level higher than $500,000 (an amount set 23 years ago that equates to over $930,000 today) so as to protect small businesses from the impact of minimum-wage increases.

Another candidate would be permitting the private sector's use of compensatory time off in lieu of overtime pay.  A bill to that effect was recently introduced in the U.S. House of Representatives and has already been the subject of a committee hearing; perhaps this is in the offing as a tradeoff.  Assuming for the moment that this amendment (as filtered through the inevitable U.S. Labor Department interpretations) would be of appreciable benefit, it would expire in five years.  The proposed indexing of the minimum wage would not expire in five years; it seems ill-advised to sunset the benefit of the bargain.

Unless employers clearly and vigorously make their desires known to Congress without delay, the most that can probably be expected is something that will turn out to be as meaningless and soon-to-be-forgotten as the "training wage".

UPDATE 04/19/13:   The "comp time" bill referred to in the post, H.R. 1406, has been approved by the Committee on Education and the Workforce for consideration by the full House of Representatives.  The current version still contains the five-year "sunset" provision.

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U.S. Senator Elizabeth Warren (D-MA) recently asked during a Senate committee hearing why the federal Fair Labor Standards Act's $7.25-per-hour minimum wage has not already increased over time to the level of $22 an hour.  A professor appearing at the hearing opined that a case could be made for a current rate of $33 an hour.

So why isn't the FLSA minimum wage more than 450% higher than it is today?  Maybe the more relevant points to ponder in evaluating this are why President Obama proposed an increase to only $9.00 per hour, and why those who criticized this as being too low are seeking to raise the minimum wage only to $10.10 per hour – and even then to do so in three steps, instead of immediately (links to bills below).

Not Explained By The Poverty Rationale

President Obama's stated reason for an increase, echoed in one form or another by many others, was that no one who works full-time should have to live in poverty.  But the 2013 federal poverty threshold for an individual is a little less than $11,500 annually, which would be achieved by working 40 hours a week at a wage rate of approximately $5.53 per hour, or about 24% less than today's FLSA minimum wage.

By contrast, the current poverty level for a family of four is set at a bit more than $23,500.  A $10.10 minimum wage (which under current proposals would not even be reached until 2015) would produce about $2,500 less than that – only around $21,000 annually at 40 hours a week.

And the Economic Policy Institute projects that over 47% of the workers who would be affected by a rise to $10.10 per hour already have annual family incomes of $40,000 or more – a range that starts at 170% of the family-of-four poverty threshold.  EPI estimates that 30% of those family incomes fall into the range of $60,000 or more, with nearly 21% at $75,000 or more.

Whatever else one thinks about the proposed minimum-wage rates, they have no readily-apparent connection to poverty considerations.

The More-Likely Explanation

Those who take the view that a jump in the minimum wage is ill-advised in the current economic climate do so for a variety of reasons, foremost among them being the prospects that such action will curtail future hiring and will increase already-high unemployment levels.  Many critics of these concerns allow no room even for honest, good-faith, reasonable disagreement on the matter.  The U.S. Labor Department has been so bold as to impugn opponents' veracity and/or intellectual rigor in e-newsletters labeling their concerns as being "myths" that are "false".

Nevertheless, the far-more-likely explanation for why the FLSA minimum wage is not already orders of magnitude higher than $7.25, and why even most of those who propose to increase it do not advocate doubling or tripling it and doing so right away, is the awareness that in fact opponents' concerns cannot be summarily dismissed as "myths" or as being "false".  These concerns must be especially troubling today, when indications are that employers are already contemplating reductions in their workforces and in their employees' hours worked for other reasons.  Perhaps the unstated for-the-greater-good aim is to fine-tune an increase in the minimum wage to a supposedly "acceptable" level and kind of reduced and forgone employment.

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H.R. 1010.pdf (252.68 kb)

S. 460.pdf (248.74 kb)

We have previously reported on legislation introduced earlier this year to increase the federal Fair Labor Standards Act's minimum wage.  In the last several days, supporters have commenced a coordinated and intensive public-relations effort to generate the necessary political pressure for the passage of such a measure.  This has culminated in the filing of yet more bills in the Senate and House.

First The PR Groundwork . . .

The train actually left the station earlier this summer.  On June 6, Rep. Jesse Jackson, Jr. (D-Ill.) introduced a bill to raise the minimum wage to $10.00 per hour.  On that same day, the Food Chain Workers Alliance issued a paper urging policymakers to "[i]ncrease the minimum wage, including the minimum wage for tipped workers."  This was only the opening salvo.

On July 19, a National Employment Law Project report entitled "Big Business, Corporate Profits, and the Minimum Wage" was released to immediate media fanfare.  The report's stated aim was to "examine[] the connection between [the] opposing extremes of stagnant wages and soaring corporate profits."  Associated media coverage included pieces such as, "Low-Wage Workers Employed Mostly By Large, Highly Profitable Corporations: Report," (Huffington Post, July 19); "Want a Real Recovery? Raise the Minimum Wage" (Huffington Post, July 20); and "An Increase in the Minimum Wage Is Long Overdue" (U.S. News and World Report, July 20).  NELP collaborated with the Service Employees International Union's International President Mary Kay Henry on "Hardworking Americans Should Not Be Living In Poverty" (CNN, July 25).

On July 23, the Economic Policy Institute released an open letter addressed jointly to President Obama and Congressional leadership in which it urged boosting the minimum wage in three 85-cent increments, to $9.80 per hour.  Around that same time, a flurry of supportive press releases and media comment also issued forth from an organization called "Business for a Fair Minimum Wage".

. . . Then The Legislation

On July 26:

♦   Rep. George Miller (D-Calif.) introduced H.R. 6211 to push the rate to $9.80 per hour in three 85-cent increments and to index it to the Consumer Price Index thereafter;

♦   Senator Tom Harkin (D-Iowa) tendered S. 3453 which, according to his press release, also proposes both the $9.80 figure and indexing.

It further appears that both bills seek to raise the minimum cash wage for employees as to whom an employer takes the FLSA "tip credit" from today's $2.13 per hour to 70% of the FLSA minimum wage (that is, to $6.86 per hour at a minimum wage of $9.80 per hour).  This is being portrayed as an increase in the "minimum wage for tipped workers," but of course the current FLSA minimum wage for tipped workers is the same as it is for everyone else:  $7.25 per hour.

Proponents of an increase in the minimum wage clearly believe that the current political environment can be turned to their benefit.  Absent a prompt and commensurate response from the employer community, this could turn out to be correct.

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Last week, Rep. Jesse Jackson, Jr. (D-Ill.) introduced a bill to raise the federal Fair Labor Standards Act's minimum wage to $10.00 per hour beginning 60 days after enactment.  Beginning one year after the new minimum took effect, the rate would be subject to annual increases indexed to rises in the Consumer Price Index.

Rep. Jackson's bill also proposes to raise the minimum cash wage for employees for whom an employer takes the FLSA "tip credit".  The hike would be from today's $2.13 per hour (the tips themselves must make up the difference to $7.25) to 70% of the FLSA minimum wage, that is, to $7.00 per hour if the bill becomes law as written.  It is surely not happenstance that this corresponds to one of the policy prescriptions in a report also issued last week by the "Food Chain Workers Alliance", supported in part by Saru Jayaraman of the University of California's "Food Labor Research Center", who has urged similar measures about which we have written previously.

Also, Rep. George Miller (D-CA) is reportedly putting together a bill that would take a less-abrupt approach to a minimum-wage increase.  Whether this will seem moderate only by comparison to Rep. Jackson's proposal remains to be seen.

Meanwhile, over in the Senate sits the still-pending bill introduced by Senator Harkin in late March calling for a 35% spike in the minimum wage, a $590-per-week increase in the salary amount required for exempt "white collar" workers, an immediate 41% rise in the cash wage required for tipped employees, and a new paid-time-off entitlement.

Obviously, these developments are being closely coordinated to take advantage of what proponents judge to be a favorable political environment.  And it is not beyond imagining that an election-year deal might bring about some compromise version of these contending visions.  In the past, for example, substantial minimum-wage increases have been exchanged for measures like a "training wage" and an "opportunity wage".  Readers will have trouble calling these to mind, because neither of them proved to be of any practical or offsetting value to anyone.

Those who are troubled by the direction matters are taking would be well-advised to remain vigilant and to waste no time making their views known to Congress.

Hat tips to The Hill and CNSNews.com.

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If a 35% spike in the minimum wage, a $590-per-week increase in the salary amount required for exempt "white collar" workers, an immediate 41% rise in the cash wage required for tipped employees, and a new paid-time-off requirement are prescriptions for an economic upturn, then help might be on the way.  All are provided for in the voluminous "Rebuild America Act", S. 2252, recently introduced by Senator Tom Harkin (D-Iowa).

The Minimum Wage

Under S. 2252, the federal Fair Labor Standards Act's minimum wage would rise in three steps from the current level of $7.25 per hour to $9.80 per hour about two years after passage.  After that, the rate would be adjusted annually in tandem with the Consumer Price Index.

Experts typically disagree about the negative effects of minimum-wage increases, but many (if not most) acknowledge that at least some jobs and job opportunities are lost to a minimum-wage hike.  Consider this:  The rationales for a minimum wage might suggest that the floor should be, say, $20 per hour, but the hiring cutbacks and layoffs this would provoke are an important reason that few would favor it.

And recent experience counsels even more caution.  We first wrote in 2010 about the larger lessons to be learned from the damaging impact of minimum-wage hikes affecting American Samoa and the Northern Mariana Islands.  Since then, the General Accounting Office has noted the many adverse consequences, and those whose experience with these matters is more than academic continue to seek at least a postponement in further jumps.

Salary Amount For White-Collar Workers

Most workers who otherwise qualify for exemption as executive, administrative, or professional employees (colloquially, the FLSA's "white collar" exemptions) must be paid on a salary basis at a rate of at least $455 per week.  S. 2252 would move this floor to $655, then to $855, and later to $1,045, and would thereafter tie it to the Consumer Price Index.

The U.S. Labor Department developed the salary test decades ago as one way to distinguish those who should be considered exempt from those who should not be.  It was never intended to be a minimum wage for exempt people.  Muddying the test's purpose as S. 2252 proposes would, among other things, risk introducing the same dangers (or worse) presented by raising the hourly minimum wage.

Cash Wage For Tipped Employees

Today, a tipped employee for whom an employer takes the FLSA "tip credit" must be paid a cash wage of at least $2.13 per hour (the tips themselves must make up the difference to $7.25).  S. 2252 would immediately raise this cash minimum to $3.00 per hour and would continue the increases until the level reached 70% of the FLSA minimum wage.

A more-focused bill to similar effect was introduced in the House of Representatives last year.  As we said then, these impulses are driven by flawed or unstated premises, or both.  In any case, good intentions are not guaranteed to produce desirable results.

A Paid-Time-Off Requirement

S. 2252 would also compel most employers of at least 15 employees to accrue an hour of paid "sick time" for every 30 hours an employee works, up to at least 56 hours each calendar year.  Exempt white-collar workers would be presumed to work 40 hours each workweek for these purposes, except for those who worked a "shorter normal workweek".  A host of detailed rights, requirements, permitted uses, limitations, procedures, prohibitions, and other complications would attach to this new paid-leave mandate.

None of this will be enacted in an election year?  Recall that the subject of indexing the FLSA minimum wage has already surfaced in the Republican primary process.

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Recent U.S. Labor Department news releases show something important about its current approach to enforcing the federal Fair Labor Standards Act:

♦       An enforcement initiative directed at Long Island, New York full-service restaurants resulted in assessments of more than $2.3 million in back-wages for 578 employees, as well as in civil money penalties of over $200,000.

♦       DOL is conducting a multi-year enforcement initiative focused upon the construction industry in Connecticut and Rhode Island, where 183 investigations of construction-industry employers have so far recovered nearly $3.3 million in back-wages for 1,226 employees.

♦       A DOL enforcement initiative focused upon hand-harvested crops in Florida has generated back-pay of over $156,000 for 689 agricultural workers and approximately $680,000 in civil money penalties.

♦       DOL is conducting a multi-year enforcement initiative focused upon the gas-station industry in New Jersey, where it has already conducted 74 investigations resulting in over $1 million in back-wages for 295 workers.

♦       An ongoing DOL enforcement initiative targeting full-service buffet restaurants in south Florida has to date resulted in 34 completed investigations involving more than $667,000 in back-wages for 271 restaurant employees, as well as in the levy of over $14,000 in civil money penalties.

♦       DOL has embarked upon an enforcement initiative focusing on the residential-care industry in North Carolina, through which officials seek to remedy what they believe to be "systemic violations" in this industry.

As this reveals, DOL's Wage and Hour Division is allocating substantial resources to broad-based regional, state, and local efforts centered around certain industries and employers.  DOL probably feels it appropriate now to make full use of the hundreds of investigators it has hired in the last two years or so, viewing them as being experienced enough to take on these efforts.  The categories involved seem for now to be among those to which DOL has devoted heightened attention in the past, that is, agriculture, day-care/residential care, restaurants, garment manufacturing, guard services, healthcare, hotels and motels, janitorial services, and temporary workers.  However, employers should not assume that the initiatives will be limited to these industries.

DOL is no doubt scheduling selected employers for compliance audits even though no individual has made an FLSA complaint.  And although DOL sometimes undertakes "directed" audits to look into specific issues, management should not necessarily expect an investigator to limit his or her inquiries to these areas.

These efforts are also likely to include compliance reviews of at least some employers whom DOL has previously found to be in violation of the FLSA.  And as the summaries above reveal, it is entirely possible (maybe even likely) that DOL will assert FLSA civil money penalties and/or will take more-serious action if these follow-on audits reveal additional shortcomings.

Employers should immediately confirm that they are fully in compliance with the FLSA and with all applicable state or local laws.

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Section 3(m) of the federal Fair Labor Standards Act allows a portion of the employee's FLSA-required minimum wages to consist of tips.  Unfortunately, it is all-too-common for employers to make expensive mistakes where tips are concerned.

Fundamental Rules

Tipped employees are those engaged in occupations in which they customarily and regularly receive more than $30 a month in tips.  Tips they actually receive may be counted as FLSA wages up to a current maximum of $5.12 per hour; the employer must pay them at least $2.13 an hour in addition to tips.  The FLSA requires an employer to tell each tipped employee about the law's tip-credit provisions in advance.  And, as we reported in May, the U.S. Labor Department now says that other notifications are also required.

The employee's creditable-tips-plus-wages total must come to at least the current minimum wage of $7.25; the employer must make up any shortfall.  Employees must be allowed to keep their tips, except that they can be required to contribute to a tip-pool participated in only by other employees who customarily and regularly receive tips.

Pitfalls and Misconceptions

Among the typical problems are:

♦   Failing to provide the necessary tip-credit notification;

♦   Not ensuring that the total of an employee's hourly wage plus his or her creditable tips equals at least the minimum wage; or

♦   Not being able to document that employees actually received enough in tips to cover the credit taken.

Employers also find themselves facing liability for:

♦   Taking the tip-credit for hours a "dual function" employee spends in non-tipped work (learn more here);

♦   Calculating overtime at 1.5 times only the employee's $2.13-per-hour cash wage;

♦   Taking a larger tip-credit for overtime hours than for non-overtime ones;

♦   Withholding uniform costs, shortages, breakage, "walk-outs", and so on from an employee's tips; or

♦   Maintaining invalid tip-pools.

Trouble can also result from lumping both tips and service charges under the catch-all term "gratuity".  An FLSA tip-credit "tip" is a payment the patron decides whether to make, and as to which the patron decides how much to give and to whom to give it.  No tip credit may be taken for a compulsory service charge imposed by the employer.  What's more, service charges paid to employees must be included when figuring any FLSA overtime pay they are due.

What About Other Laws?

Some states do not permit taking a tip-credit, while others allow one but restrict the amounts in ways which are different from the FLSA's provision.  Also, an increasing number of states and other jurisdictions prescribe what employers may, may not, and must do where sums representing tips and service charges or fees are concerned.

Employers should immediately check to see whether tips and tip-credit matters are being handled in the proper way.  Even if things used to be fine, management is not always aware of changes in the law or in day-to-day procedures that can lead to major problems.

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President Obama's signature recently put the finishing touch on a delay of previously-scheduled increases in the minimum wage for American Samoa and the Northern Mariana Islands.  Why should we care about this quiet action affecting these far-off places?  Because it highlights the impact that boosting a minimum wage has in the longer term.

Whenever raising the minimum wage moves back to the forefront, this inevitably renews debate about whether such action does more harm than good.  Opponents of the move contend that the resulting increased labor costs cause many employers to, among other things:

•   Eliminate or postpone hiring plans;

•   Limit any new hiring to segments of the workforce that are not affected by the minimum-wage increase either at all or at least in any material way;

•   Layoff existing employees;

•   Reduce or eliminate employment benefits, particularly those directly related to wages;

•   Shift lower-paying work offshore, or even move entire operations to other countries; and/or

•   Pass along increased costs to consumers, including those whom the minimum-wage jump is supposed to help.

Proponents of an increase usually respond that these effects are non-existent or are greatly overstated.

But for the last two years, the governments of American Samoa and the Northern Mariana Islands have fought to fend off what they saw as an approaching disaster that threatened many of these very consequences.  Island legislators cautioned that the "this legislation will, without a doubt, trigger an economic tsunami that will absolutely wipe out the Territory of American Samoa’s economic system," and that, "[w]hile short time economic benefits will be realized, unfortunately, this short lived Utopian state will be followed by a period of drastic economic devastation."  The officials' concerns included the possible off-island relocation of tuna canneries and the loss of 1,600 jobs at a major hotel.

The U.S. economy and the economies of most states are of course far larger and are more varied, complex, interconnected, and dynamic than are those of these islands.  But this is precisely why the postponement is worth noting:  When viewed in a microcosm, the damaging impact of a minimum-wage hike is seen more easily and in starker relief, so much so that many who would otherwise be quick to say that the unfavorable results of such a step can be "absorbed" were convinced otherwise when faced with the real-world details.

Perhaps in the current circumstances this suggests that, at least for the time-being, the prospects for a broader-scale rise in the minimum wage are dim.

We've had inquiries recently about whether the federal Fair Labor Standards Act allows employers to pay less than its $7.25-per-hour minimum wage to certain younger workers.  While there is such an exception, it is limited in important ways.

The FLSA's so-called "Opportunity Wage" provision allows an employer to pay a worker who is under 20 years old at a rate of at least $4.25 per hour for the first 90 consecutive calendar days after the worker's initial employment by that employer.  An employer may not displace other workers (including that it can neither terminate them nor reduce their hours, wages, or benefits) in order to hire employees at the Opportunity Wage.
 
The 90-day period begins to run when the employee starts work – not when the employee was made an offer or accepted the job – and it includes the first day of work.  The period is counted in calendar days – not working days – so it continues to run:

•   Regardless of the number of days the employee actually works during that time, and

•   Even if the employee has a break-in-service during the 90 days.

The U.S. Labor Department says that an employer may not (i) employ a worker at this lower rate until the 90 days runs out, and (ii) then discharge that person in order to hire another one at the Opportunity Wage.

The employer is no longer permitted to pay a worker at the lower rate once he or she turns 20.  This is so even if the 90-day period has not yet expired.

The Opportunity Wage does not excuse an employer from complying with the FLSA's child-labor restrictions.  Neither does it override a state's or other jurisdiction's requirement to pay a higher minimum wage than $4.25 (although an employer should find out whether that jurisdiction has its own exception similar to the Opportunity Wage).

Be careful not to confuse the Opportunity Wage with another FLSA exception involving special certificates the U.S. Labor Secretary may issue.  These certificates permit certain workers (such as full-time students and student-learners, for instance) to be employed at rates less than the FLSA's minimum wage.  However, there are extensive, detailed, and differing requirements for who can qualify, how employers must go about applying for certificates, the conditions under which certificates will be issued, what records must be kept, and how and why the Labor Department might withdraw a certificate.  Employers may not pay the lower minimum wage to such workers without the certificate in hand, and the authorized hourly rate will be substantially higher than $4.25.

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FLSA Opportunity Wage Provision, 29 U.S.C. 206(g).pdf (21.90 kb)