Provisions of Final Tip Pool Rule Effective November 23, 2021

The U.S. Department of Labor’s latest final tip pool rule provisions will take effect on November 23, 2021. For further discussion on other provisions of the final rule that were implemented in April 2021, please see Lake Effect’s prior blog on this topic.

The following provisions of the final tip pool rule will take effect on November 23, 2021:

  • Managers and supervisors may keep tips they receive for services provided “solely” by the manager or supervisor and “directly” to customers. This clarification to the traditional prohibition on managers and supervisors receiving tips in a tip pool or tip sharing arrangement recognizes the reality that managers and supervisors are often called upon to perform tipped duties in the course of their workday. This means, for example, when a bar manager is working as a bartender to fill in for an absent bartender or during a slow shift, the bar manager may keep tips received directly from patrons at the bar. Similarly, when a salon manager receives tips from a client for a haircut done by the salon manager, the salon manager may keep the tips.
  • Managers and supervisors may contribute some of their tips received from their “sole” and “direct” work into mandatory tip pools or sharing, but they may not receive any tips from a tip pooling or tip sharing arrangement. Further, an employer may require (or may allow) managers and supervisors to contribute part of their “sole” and “direct” tips into tip pooling or sharing arrangements, but, again, managers and supervisors may not keep or receive employees’ tips, or other managers’ and supervisors’ tips, in any arrangement.
  • Employers may face fines up to $1,100 for each instance that the Department of Labor finds an employer took an employee’s tips, regardless of whether the violation was repeated or willful. This now encompasses employer behavior that is in “reckless disregard” of the FLSA regulations and situations when an employer should have explored if its behavior was compliant but failed to do so.

Lake Effect is here to answer your questions about federal and state wage and hour laws that impact employers across all industries. We continue to monitor important legal and HR developments, as well as COVID-related updates from federal, state, and local authorities. Please watch our blogs and emails for these important updates, as well as discussions of how compliance meets culture. To dive into these issues, contact us at info@le-hrlaw.com or 1-844-333-5253.

DOL Withdraws Final Rule on Independent Contractor Status under FLSA

On May 5, 2021, the Department of Labor (“DOL”) announced a new final rule withdrawing the “Independent Contractor Status Under the Fair Labor Standards Act” final rule (Independent Contractor Rule) that had been published on January 7, 2021, to take effect on March 8, 2021. Of note, the DOL is not issuing new federal guidance on independent contractor status with this new rule. The DOL indicated that the January 2021 rule “is inconsistent with the FLSA’s text and purpose, and would have a confusing and disruptive effect on workers and businesses alike. . . .” The new Rule will be published on May 6, 2021.

Employers should keep in mind that many states, including Wisconsin, have adopted their own tests for independent contractor status. These state laws can vary widely from state-to-state, and even within a state, depending upon the issue being addressed (i.e., unemployment eligibility, wage and hour, tax liability). Lake Effect continues to monitor federal and state laws and guidance relating to independent contractor status, and we will keep you apprised of developments in this area.

Lake Effect is here to answer your questions about independent contractors, FLSA, and labor laws. We continue to monitor important legal and HR developments, as well as COVID-related updates from federal, state, and local authorities. Please keep watching our blogs and emails for these important updates, as well as discussions of how compliance meets culture. To dive into these issues, contact us at info@le-hrlaw.com or 1-844-333-5253.

Major Provisions of Final Tip Pool Rule Become Effective April 30, 2021

Three main provisions of the US Department of Labor’s final tip pool rule take effect April 30, 2021. Other parts of the rule are delayed and could be further revised by the Biden Administration. For a complete discussion of the final rule, issued on December 22, 2020, please see Lake Effect's prior blog on this topic.

The following provisions of the final tip pool rule take effect April 30, 2021:

  • Employers, managers, and supervisors are prohibited from sharing or keeping any portion of tips received by employees; this prohibition applies regardless of whether the employer takes a tip credit and regardless of the type of tip pool implemented.
  • Employers who do not take a tip credit have two options for tip pooling. Employers may create a “traditional tip pool” and/or a “nontraditional tip pool,” which includes employees who do not regularly receive tips, such as cooks and dishwashers. Employers who take a tip credit can only create a traditional tip pool.
  • An employer who takes a tip credit or creates either type of tip pool must identify on its payroll records each employee who receives tips and maintain records of the weekly or monthly amount of tips reported by each employee.

The effective date of the remaining provisions of the final tip pool rule has been delayed until December 31, 2021. Those delayed provisions address:

  • The assessment of civil monetary penalties against employers who “willfully” or otherwise violate the FLSA’s prohibition against keeping employee tips.
  • The application of the FLSA tip credit to tipped employees who perform tipped and non-tipped duties. The effective date of these provisions is delayed until December 31, 2021.

Lake Effect is here to answer your questions about federal and state wage and hour laws that impact employers across all industries.  We continue to monitor important legal and HR developments, as well as COVID-related updates from federal, state, and local authorities. Please watch our blogs and emails for these important updates, as well as discussions of how compliance meets culture. To dive into these issues, contact us at info@le-hrlaw.com or 1-844-333-5253.

New COBRA Notice Requirements for Employers Under the American Rescue Plan Act

On April 7, 2021, the US Department of Labor published FAQs and model notices implementing the temporary COBRA premium assistance provisions of the American Rescue Plan Act of 2021 (ARPA). Employers and other group health plan issuers are subject to new COBRA notice and other requirements.

What: Under the ARPA, “Assistance Eligible Individuals” may elect to continue employment-based group health plan coverage for up to 5 months – from April 1, 2021 through September 30, 2021 – without paying COBRA premiums. Employers or plan issuers must pay premiums on behalf of such individuals and will be reimbursed through a COBRA premium assistance tax credit.

Who: To be an “Assistance Eligible Individual” under the ARPA, an individual must meet all of the following requirements:

  • MUST have a COBRA qualifying event that is a reduction of hours or an involuntary termination of employment (NOT including a voluntary termination or a termination for gross misconduct);
  • MUST elect COBRA continuation coverage;
  • MUST NOT be eligible for Medicare; and
  • MUST NOT be eligible for coverage under any other group health plans, such as a plan sponsored by a new employer or a spouse’s employer.

When: COBRA premium assistance is available for periods of coverage from April 1, 2021 through September 30, 2021. Assistance will end earlier if an individual:

  • Reaches the end of their maximum 18-month COBRA continuation period; OR
  • Becomes eligible for Medicare or other group health plan coverage (including from a new employer).

Notice Requirements: Employers and other plan issuers must notify qualified beneficiaries about COBRA premium assistance and other rights as follows:

Additional Election Opportunities: The ARPA provides additional COBRA election opportunities under certain circumstances:

  • Group health plans may (but are not required to) offer Assistance Eligible Individuals the option to choose coverage different from that which they had at the time of the COBRA qualifying event, subject to certain restrictions and additional notice requirements.
  • If a family member of an Assistance Eligible Individual did not initially elect COBRA continuation at the time of a qualifying event, they have an additional opportunity to enroll with premium assistance. This will not extend the period of COBRA continuation coverage beyond the original maximum period.

This summary of ARPA’s COBRA premium assistance provisions is not intended to provide an exhaustive analysis of the law, but your partners at Lake Effect are ready to help you navigate the new requirements. Employers should also work closely with their group health plan providers to ensure complete compliance with COBRA notice and coverage provisions.

We continue to monitor developments and guidance relating to the American Rescue Plan Act of 2021 and other legislative efforts to address the continuing impact of the COVID-19 pandemic. We will provide you with employment-related updates on these topics as they arise.

Biden Administration Impact on the Workplace

Just one week into his administration, President Biden has signaled that he will take a fresh look at current issues affecting American workers and workplaces. His recent executive orders and memoranda include the following actions:

  • Halt Final Rules governing tip pools and independent contractors: This Executive memorandum stays pending final rules that have been published but which had not yet taken effect to allow the Biden Administration to review their impact. This also directs that any rules which had been sent to the Federal Register but had not yet been published must be immediately withdrawn for review. This results in a stay of the Independent Contract Final Rule and the new Tip Pooling Rule. As a result, the Department of Labor has withdrawn 3 opinion letters related to those rules. See Lake Effect’s previous blogs on the Independent Contractor Final Rule, the Tip Pooling Final Rule, and two of the tip pool opinion letters.
  • Expand COVID-related unemployment benefits: This Executive Order permits employees who refuse work based on COVID health-related concerns to receive unemployment benefits.
  • Promote racial equity: This Executive Order directs the Biden administration to conduct equity assessments of its agencies and reallocate resources to “advanc[e] equity for all, including people of color and others who have been historically underserved, marginalized and adversely affected by persistent poverty and inequality.”
  • Reaffirm gender equity: This Executive Order expands protections against discrimination based on sex in federal agencies to explicitly include sexual orientation, gender identity, and gender expression. This does not have a direct impact on private employers, but does follow the U.S. Supreme Court decision in Bostock v. Clayton County, Georgia (see Lake Effect’s blog here).
  • Enhance COVID-related workplace safety: This Executive Order requires administrative agencies to take “swift action to reduce the risk that workers may contract COVID-19 in the workplace.” This will most likely result in action from OSHA setting forth “science-based guidance to help keep workers safe from COVID-19 exposure, including with respect to mask-wearing; partnering with State and local governments to better protect public employees; enforcing worker health and safety requirements; and pushing for additional resources to help employers protect employees.”

The attorneys and HR professionals at Lake Effect will continue to closely monitor the Biden administration’s executive actions, legislative developments, and their impact on workplaces.

DOL provides additional guidance on tipped employees

***Update, January 27, 2021***

UPDATED BY EXECUTIVE ORDER – CLICK HERE FOR UPDATED INFORMATION

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On January 15, 2021, the US Department of Labor’s Wage and Hour Division (WHD) issued two opinion letters relating to tipped employees.

In FLSA2021-4, the WHD considered whether a restaurant may institute a tip pool that includes both servers (for whom the employer takes a tip credit) and hosts/hostesses (for whom a tip credit is not taken). Based upon the information presented, WHD could not conclude that the restaurant’s hosts and hostesses were employed “in an occupation in which employees customarily and regularly receive tips.” Therefore, hosts could not participate in the same traditional tip pool as servers, for whom the restaurant took a tip credit. However, WHD observed that under recently revised regulations scheduled to take effect March 1, 2021, the restaurant could create a nontraditional tip pool to include both tipped (servers) and non-tipped employees (hosts/hostesses). In order to do so, the restaurant would have to pay the full minimum wage to all employees, and it could not take a tip credit for any of the employees. WHD also reiterated that managers and supervisors could not be included in any tip pool. For a complete discussion of WHD’s revised regulations, please see Lake Effect's prior blog on tip pooling and tip credits.

In FLSA2021-5, the WHD provided guidance on compensating an employee who performs two different jobs in the same week. The WHD specifically addressed how to calculate overtime pay for an employee who earns cash wage plus tips for hours worked as a server and an hourly wage plus automatic service charges for additional hours worked as a bartender during the same week. WHD confirmed that where an employee performs two or more different types of work with different rates of pay in the same workweek, the employee’s regular rate of pay for that week (used to calculate any overtime) is the weighted average of the different rates earned. In this instance, the employer must take the employee’s total compensation from all rates of pay (cash wage plus tip credit for server hours and hourly wage plus service charges for bartender hours) and divide that by the total number of hours worked at all jobs to determine the regular rate of pay. That regular rate of pay is then multiplied by 1.5 to calculate overtime pay for all hours worked in excess of 40.

While WHD opinion letters can provide valuable guidance to covered employers, they are based upon the facts of the specific case presented. Therefore, the scope of their legal impact is often uncertain. Employers who have questions about tip pools or compensating tipped employees should work closely with legal counsel to ensure full compliance with applicable federal and state laws. We continue to closely monitor all developments in this area, and we will provide you with important updates.

Lake Effect is here to answer your questions about federal and state issues affecting employers. We continue to monitor important legal and HR developments, as well as COVID-related updates from federal, state, and local authorities. Please keep watching our blogs and emails for these important updates, as well as discussions of how compliance meets culture. To dive into these issues, contact us at info@le-hrlaw.com or 1-844-333-5253.

Lake Effect HR & Law is in business to maximize each client’s workplace potential with a commitment to kindness, true partnership, and exceptional service. 

DOL clarifies FLSA’s “amusement or recreational establishment” exemption

On January 15, 2021, the Wage and Hour Division (WHD) of the US Department of Labor issued opinion letter FLSA2021-3. The letter explores the scope of Section 13 (a)(3) of the Fair Labor Standards Act (FLSA), which creates an exemption from the minimum wage and overtime provisions for “an employee employed by an establishment which is an amusement or recreational establishment, organized camp, or religious or non-profit educational conference center.” In addition to meeting this definition, an entity must satisfy either a “calendar test” or a “receipts test,” designed to limit the exemption to employees of truly seasonal operations.

Examining three different entities, the WHD concluded as follows:

  • In order to be an “establishment” under Section 13 (a)(3) of the FLSA, an entity must have a distinct physical location for its recreational operations. An entity that organizes and leads nature walks, hikes, daytrips, and overnight camping trips for children does not meet this definition. The entity has a recreational character and purpose. However, it maintains an office solely for administrative purposes; its trips do not meet, leave from, or return to that office. Therefore, its recreational operations do not have a “distinct physical location” over which it exerts control as required to satisfy the “establishment” exemption.
  • A non-profit religious ministry that runs a year-round camp/ retreat center and uses an accrual method of accounting cannot satisfy the “receipts” test under Section 13 (a)(3) of the FLSA. To qualify for the exemption, an entity must show that during the preceding calendar year, its average receipts for any six months of the year were not more than 33 ⅓ percent of its average receipts for the other six months of that year (of note, the months need not be consecutive). For purposes of the FLSA exemption, “receipts” means money actually received and does not incorporate accrual accounting principles. Furthermore, “receipts” under Section 13 (a)(3) refers to money received in exchange for goods or services and does not include charitable donations.
  • An entity that plans and produces thousands of events at various locations each year for companies, non-profits, and other organizations is not an “establishment” under Section (a)(3) of the FLSA. While it maintains a warehouse and administrative offices, it does not exert control, even for a limited period, over fixed locations that have amusement or recreational character. It simply helps produce events on premises that are held and controlled by its clients.

While WHD opinion letters can provide valuable guidance to covered employers, they are based upon the facts of the specific case presented. Therefore, the scope of their legal impact is often uncertain. Employers whose seasonal employees may qualify for the “amusement or recreational establishment” exemption should work closely with legal counsel to determine whether the exemption is likely to apply.
We continue to closely monitor developments in this area and will provide you with important updates.

Lake Effect is here to answer your questions about federal and state issues affecting employers. We continue to monitor important legal and HR developments, as well as COVID-related updates from federal, state, and local authorities. Please keep watching our blogs and emails for these important updates, as well as discussions of how compliance meets culture. To dive into these issues, contact us at info@le-hrlaw.com or 1-844-333-5253.

DOL Issues Final Rule on Independent Contractor Status under FLSA

***Update, January 27, 2021***

UPDATED BY EXECUTIVE ORDER – CLICK HERE FOR UPDATED INFORMATION

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On January 6, 2021, the US Department of Labor announced a final rule establishing the test for whether a worker will be classified as an independent contractor or an employee under the Fair Labor Standards Act (“FLSA”). The final rule adopts the “economic reality” test, which was set forth in the DOL’s proposed rule published in September 2020. Under that test, the two core factors are the nature and degree of control over the work and the worker’s opportunity for profit or loss. For a full discussion of that test, these key factors, and other relevant considerations, please review Lake Effect's September 22, 2020 blog on the DOL’s proposed rule. The final rule also reiterates that the actual practice of the employer and the worker will govern the inquiry, not contractual language or theoretical possibilities.

The final rule will be published in the Federal Register on January 7, 2021 and take effect on March 8, 2021.

Keep in mind that DOL’s final rule is unlikely to fully resolve this challenging issue for most employers. Many states have adopted their own tests for independent contractor status, and these can vary widely from state-to-state, and even within a state, depending upon the issue being addressed (i.e., unemployment eligibility, wage and hour, tax liability). Lake Effect continues to monitor federal and state laws and guidance relating to independent contractor status, and we will keep you apprised of developments in this area.

Lake Effect is here to answer your questions about independent contractors, FLSA, and labor laws. We continue to monitor important legal and HR developments, as well as COVID-related updates from federal, state, and local authorities. Please keep watching our blogs and emails for these important updates, as well as discussions of how compliance meets culture. To dive into these issues, contact us at info@le-hrlaw.com or 1-844-333-5253.

Lake Effect HR & Law is in business to maximize each client’s workplace potential with a commitment to kindness, true partnership, and exceptional service.

DOL Issues Timely Wage and Hour Rule and Guidance

***Update, January 27, 2021***

UPDATED BY EXECUTIVE ORDER – CLICK HERE FOR UPDATED INFORMATION

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Over the last few weeks, the Department of Labor (DOL) has been busy ticking items off its to-do list. We have seen action on everything from tip pooling to employee notices to travel time.

Tip Pooling and Tip Credits
In October, 2019, Lake Effect blogged on the Department of Labor’s (DOL) proposed new Fair Labor Standards Act (FLSA) regulations on tip pooling, tip credit, and payments to tipped employees. The DOL published the Final Rule on December 22, 2020, implementing most of the changes to tip pooling and tip payments that were proposed in 2019. See also a helpful summary and FAQ provided by the DOL. The Final Rule is effective March 1, 2021.

This new rule will be helpful for restaurant, bar, and hospitality employers making plans to expand or resume operations in the coming months. Many hospitality employers have implemented – or may now consider implementing – tip pools to supplement employee compensation, improve morale, and incentivize all workers to maximize performance. In short, tip pooling can be a useful tool to enhance employee recruitment and retention.

The new tip credit and tip pooling regulations include the following:

  • No tips for managers, supervisors, or employers: The regulations expressly prohibit employers from keeping employees’ tips and likewise prohibit managers and supervisors from sharing any employee tips, regardless of whether the employer takes a tip credit and regardless of the type of tip pool implemented. Employers who retain pooled tips or share them with managers or supervisors will be subject to civil penalties under the new regulations.
    • Relying on the FLSA duties test, a manager or supervisor is defined as any employee (1) whose primary duty is managing the enterprise or a customarily recognized department or subdivision of the enterprise; (2) who customarily and regularly directs the work of at least two or more other full-time employees or their equivalent; and (3) who has the authority to hire or fire other employees, or whose suggestions and recommendations as to the hiring or firing are given particular weight.” This also includes any workers “who own at least a bona fide 20 percent equity interest in the enterprise in which they are employed and who are actively engaged in its management.”
  • No 80/20 rule for tip credits: The regulations remove the long-standing 80/20 rule that required employers who take a tip credit (see our prior blog for an overview of tip credits) to carefully track the amount and timing of non-tipped work that employees perform. Under the new regulations, employers may take the tip credit regardless of the amount of non-tipped work an employee is performing provided the normally non-tipped work is performed “contemporaneously with” or “for a reasonable time immediately before or after” their normally tipped work duties.
  • Employers who take a tip credit are limited to a traditional tip pool: Employers who take a tip credit may create only a “traditional tip pool,” which is limited to employees who “customarily and regularly” receive tips.
  • Employers who do not take a tip credit have two tip pool options: Employers who do not take a tip credit now have two options for tip pooling. Employers may create a “traditional tip pool” and/or a “nontraditional tip pool,” which includes employees who do not regularly receive tips, such as cooks and dishwashers.
  • Record-keeping of tip credit and tip pool: Employers who take a tip credit or create tip pools must identify on their payroll records each employee who receives tips and maintain records of the weekly or monthly amount of tips received by employees, as reported by the employee to the employer. Employers can rely on employees’ information tracked on IRS Form 4070.
  • Timing of payment of tip pool tips: Employers must pay their employees the pooled tips no later than the date on which regular wages are paid to employees and, for credit card based tips, “as soon as practicable after the regular payday.” This further supports the requirement that employers must not retain tips.

Electronic Posting of Required Labor Law Posters
Acknowledging that telework will likely continue for the foreseeable future in many workplaces, the DOL provided new guidance regarding labor law posters. In a field assistance bulletin issued on December 29, 2020, the DOL confirmed that employers can satisfy applicable employee notice obligations by providing required labor law postings to employees on the internet or an intranet. Employers also must display hard copies of the posters in the actual workplace for applicants and employees who are unable to telework.

Compensation for Personal Activity Travel Time
Again acknowledging the continuation of telework, the DOL issued a wage and hour opinion letter on December 31, 2020 addressing the issue of travel time to/from work and home when an employee works part of the day remotely and part of the day in the worksite, and engages in personal activities during their travel time. The DOL reiterated that a non-exempt employee does not need to be paid for time the employee is off duty and is not working, nor for commuting time. The DOL also reinforced that the continuous workday doctrine would not apply to the fact patterns presented by the employer because, during the travel time for personal activities, the employee was clearly off duty, could use their time for their own purposes, and could choose when they would resume work at home or at the worksite. Likewise, the employee’s commuting time to and from work, during which time the employee performed no work duties, was not compensable commuting time.

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For additional information and discussion of DOL rule making, rules, and guidance, please see Lake Effect’s prior blogs on wage and hour issues. We will continue to closely monitor all developments in this area and provide you with important updates.

Lake Effect is here to answer your questions about federal and state issues affecting employers. We continue to monitor important legal and HR developments, as well as COVID-related updates from federal, state, and local authorities. Please keep watching our blogs and emails for these important updates, as well as discussions of how compliance meets culture. To dive into these issues, contact us at info@le-hrlaw.com or 1-844-333-5253.

Lake Effect HR & Law is in business to maximize each client’s workplace potential with a commitment to kindness, true partnership, and exceptional service.

DOL Announces Proposed Rule on Independent Contractor Status under the FLSA

On September 22, 2020, the US Department of Labor proposed a new rule to clarify whether a worker will be classified as an independent contractor or an employee under the Fair Labor Standards Act (“FLSA”). The proposed rule will be available for review and public comments for 30 days after it is published in the Federal Register.

The proposed rule adopts an “economic reality” test to determine a worker’s status. That test focuses on whether a worker is economically dependent upon an employer for work or is truly in business for themselves . Economic dependence is the ultimate inquiry. In applying this test, the two most important factors are:

  • Who exercises substantial control over key aspects of work performance? Where the worker sets their own schedule, selects projects, and retains the ability to work for an employer’s competitors, this factor will weigh in favor of independent contractor status. In contrast, where the employer sets the schedule, controls the workload, and requires the worker to perform work exclusively for that employer, this factor will weigh in favor of employee status.
  • Does the worker have an opportunity for profit or loss (i.e. an ability to affect their earnings by the exercise of their own management and initiative)? If the worker can earn more or lose profits based upon their own managerial skills or business acumen, for example by hiring helpers or choosing particular equipment or materials, this factor will weigh in favor of independent contract status. If the worker is unable to affect their earnings or is only able to do so by working more hours or working more efficiently, this factor will weigh in favor of employee status.

Other factors to be considered in assessing independent contractor vs. employee status under the FLSA include the amount of skill required for the work, the permanence of the working relationship between the parties, and whether the work performed by the individual is a component of the employer’s integrated production process for a good or service.

The DOL’s proposed rule emphasizes that the parties’ actual practice is key to the assessment of independent contractor status. What the parties state in a contract or what may be theoretically possible under a work arrangement is of little relevance if it differs from the reality of their working relationship.

Employers should keep in mind that many states have adopted their own tests for independent contractor status under their respective state wage and hour laws; these tests can differ from state-to-state. The tests may also vary based upon the state law issue being addressed, i.e. unemployment compensation eligibility, workers’ compensation coverage, employment tax liability, etc.

The issue of independent contractor versus employee status continues to challenge employers across all sectors throughout the U.S. We will continue to closely monitor the DOL’s proposed rule and other state-based developments in this area. In the meantime, it might be a good time to review your independent contractor agreements and work relationships within your organization. Your partners at Lake Effect HR & Law can help you ensure compliance while retaining the flexible and dynamic workforce that your organization needs. Contact us at info@le-hrlaw.com or 1-844-333-5253.

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(844) 333-5253 (LAKE)
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