[Federal Register: July 28, 2008 (Volume 73, Number 145)]
[Proposed Rules]
[Page 43654-43673]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28jy08-15]
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DEPARTMENT OF LABOR
Wage and Hour Division
29 CFR Parts 4, 531, 553, 778, 779, 780, 785, 786, and 790
RIN 1215-AB13
Updating Regulations Issued Under the Fair Labor Standards Act
AGENCY: Wage and Hour Division, Employment Standards Administration,
Department of Labor.
ACTION: Notice of proposed rulemaking and request for comments.
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SUMMARY: In this proposed rule, the Department of Labor (Department or
DOL) proposes to revise regulations issued pursuant to the Fair Labor
Standards Act of 1938 (FLSA) and the Portal-to-Portal Act of 1947
(Portal Act) that have become out of date because of subsequent
legislation or court decisions. These proposed revisions will conform
the regulations to FLSA amendments passed in 1974, 1977, 1996, 1997,
1998, 1999, 2000, and 2007, and Portal Act amendments passed in 1996.
DATES: Comments must be received on or before September 11, 2008.
ADDRESSES: You may submit comments, identified by RIN 1215-AB13, by
either one of the following methods:
Electronic comments, through the federal eRulemaking
Portal: http://
[[Page 43655]]
www.regulations.gov. Follow the instructions for submitting comments.
Mail: Wage and Hour Division, Employment Standards
Administration, U.S. Department of Labor, Room S-3502, 200 Constitution
Avenue, NW., Washington, DC 20210.
Instructions: Please submit one copy of your comments by only one
method. All submissions received must include the agency name and
Regulatory Information Number (RIN) identified above for this
rulemaking. Comments received will be posted to http://
www.regulations.gov, including any personal information provided.
Because we continue to experience delays in receiving mail in the
Washington, DC area, commenters are strongly encouraged to transmit
their comments electronically via the federal eRulemaking Portal at
http://www.regulations.gov or to submit them by mail early. For
additional information on submitting comments and the rulemaking
process, see the ``Public Participation'' heading of the SUPPLEMENTARY
INFORMATION section of this document.
Docket: For access to the docket to read background documents or
comments received, go to the federal eRulemaking Portal at http://
www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Richard M. Brennan, Director, Office
of Interpretations and Regulatory Analysis, Wage and Hour Division,
Employment Standards Administration, U.S. Department of Labor, Room S-
3506, 200 Constitution Avenue, NW., Washington, DC 20210; telephone:
(202) 693-0051 (this is not a toll-free number). Copies of this notice
may be obtained in alternative formats (Large Print, Braille, Audio
Tape or Disc), upon request, by calling (202) 693-0023 (not a toll-free
number). TTY/TDD callers may dial toll-free (877) 889-5627 to obtain
information or request materials in alternative formats.
Questions of interpretation and/or enforcement of regulations
issued by this agency or referenced in this notice may be directed to
the nearest Wage and Hour Division (WHD) District Office. Locate the
nearest office by calling our toll-free help line at (866) 4USWAGE
((866) 487-9243) between 8 a.m. and 5 p.m. in your local time zone, or
log onto the WHD's Web site for a nationwide listing of Wage and Hour
District and Area Offices at: http://www.dol.gov/esa/contacts/whd/
america2.htm.
SUPPLEMENTARY INFORMATION:
I. Electronic Access and Filing Comments
Public Participation: This notice is available through the Federal
Register and the http://www.regulations.gov Web site. You may also
access this notice via the WHD home page at http://www.dol.gov/esa/whd/
regulations/FLSA2008.htm. To comment electronically on federal
rulemakings, go to the federal eRulemaking Portal at http://
www.regulations.gov, which will allow you to find, review, and submit
comments on federal documents that are open for comment and published
in the Federal Register. Please identify all comments submitted in
electronic form by the RIN docket number (1215-AB13). Because of delays
in receiving mail in the Washington, DC area, commenters should
transmit their comments electronically via the federal eRulemaking
Portal at http://www.regulations.gov, or submit them by mail early to
ensure timely receipt prior to the close of the comment period. Submit
one copy of your comments by only one method.
II. Request for Comment
The Department requests comments on all issues related to this
notice of proposed rulemaking. This proposed rule, if implemented as a
final rule, will enhance the Department's enforcement of, and the
public's understanding of, compliance obligations under the FLSA by
replacing out of date regulations. The changes will not result in
additional compliance costs for regulated entities. Updating the
existing outdated regulatory provisions to reflect current law may
result in cost savings through the avoidance of inadvertent violations
and the costs of corrective compliance measures to remedy them.
III. Discussion of Changes
The FLSA requires covered employers to pay their nonexempt
employees a federal minimum wage and overtime premium pay of time and
one-half the regular rate of pay for hours worked in excess of forty
(40) in a work week. The FLSA also contains a number of exemptions from
the minimum wage and overtime pay requirements.
Over the years, Congress has amended the FLSA to refine or to add
to these exemptions and to clarify the minimum wage and overtime pay
requirements. As part of the U.S. Troop Readiness, Veterans' Care,
Katrina Recovery, and Iraq Accountability Appropriations Act, 2007,
Public Law 110-28 (May 25, 2007), Congress increased the FLSA minimum
wage in three steps: to $5.85 per hour effective July 24, 2007; to
$6.55 per hour effective July 24, 2008; and to $7.25 per hour effective
July 24, 2009. As part of the Small Business Job Protection Act of
1996, Congress amended section 4(a) of the Portal Act, 29 U.S.C.
254(a), to define circumstances under which pay is not required for
employees who use their employer's vehicle for home-to-work commuting
purposes. The 1996 Act also created a youth opportunity wage at $4.25
per hour under section 6(g) of the FLSA, 29 U.S.C. 206(g). In 1997,
Congress amended section 13(b)(12) of the FLSA, 29 U.S.C. 213(b)(12),
to expand the exemption from overtime pay for workers on ditches,
canals, and reservoirs where 90% (rather than 100%) of the water is
used for agricultural purposes. In 1998, Congress added section 3(e)(5)
to the FLSA, 29 U.S.C. 203(e)(5), to provide that the term ``employee''
does not include individuals who volunteer solely for humanitarian
purposes to private non-profit food banks and who receive groceries
from those food banks. In 1999, Congress added section 3(y) to the
FLSA, 29 U.S.C. 203(y), to define an employee who is engaged in ``fire
protection activities.'' In 2000, Congress added section 7(e)(8) to the
FLSA, 29 U.S.C. 207(e)(8), to treat stock options meeting certain
criteria as an additional type of remuneration that is excludable from
the computation of the regular rate. A 1974 amendment to section
13(b)(10)(B) of the FLSA, 29 U.S.C. 213(b)(10)(B), extended an overtime
exemption to include any salesman primarily engaged in selling boats
and eliminated the overtime exemption previously in subsection (B) for
partsmen and mechanics servicing trailers or aircraft. In addition,
several appellate courts interpret the overtime exemption for ``any
salesman, partsman, or mechanic primarily engaged in selling and
servicing automobiles'' in section 13(b)(10)(A) of the FLSA, 29 U.S.C.
213(b)(10)(A), as including service advisors.
A number of courts have examined the proper interpretation of the
FLSA's compensatory time provisions in section 7(o)(5) concerning
public agency employers' obligation to grant employees' requests to use
``comp time'' within a ``reasonable period after making the request if
the use of the compensatory time does not unduly disrupt the operations
of the public agency.'' 29 U.S.C. 207(o)(5). Finally, the regulations
governing the ``fluctuating workweek'' method of computing half-time
overtime pay for salaried nonexempt employees who work variable or
fluctuating hours from
[[Page 43656]]
week to week are in need of clarification and updating to delete
outmoded examples and eliminate confusion over the effect of paying
bonus supplements and premium payments to affected employees.
As discussed in more detail below, as a result of these amendments
and court decisions, this proposed rule revises a number of out-of-date
regulations issued under the FLSA and the Portal Act.
1. 2007 Amendment to the FLSA Minimum Wage
On May 25, 2007, President Bush signed into law the U.S. Troop
Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability
Appropriations Act, 2007 (Pub. L. 110-28). As part of that legislation,
Congress amended the FLSA by increasing the applicable federal minimum
wage under section 6(a) of the FLSA in three steps: to $5.85 per hour
effective July 24, 2007; to $6.55 per hour effective July 24, 2008; and
to $7.25 per hour effective July 24, 2009.
This legislation did not change the definition of ``wage'' in
section 3(m) of the FLSA for purposes of applying the tip credit
formula in determining the wage paid to a qualifying tipped employee.
Thus, the minimum required cash wage for a tipped employee under the
FLSA remains $2.13 per hour. The maximum allowable tip credit for
federal purposes under the FLSA increases as a result of the 2007
legislation, and is determined by subtracting $2.13 from the applicable
minimum wage provided by section 6(a)(1) of the FLSA. See 29 U.S.C.
203(m).
Changes are proposed in several of the FLSA's implementing
regulations that cite to the applicable minimum wage to reflect these
statutory changes, including at 29 CFR 531.36, 531.37, 778.110,
778.111, 778.113, and 778.114. Additional revisions to the McNamara-
O'Hara Service Contract Act regulations eliminate outdated references
to the FLSA minimum wage in 29 CFR 4.159 and 4.167.
2. Small Business Job Protection Act of 1996
On August 20, 1996, Congress enacted the Small Business Job
Protection Act of 1996 (SBJPA), Public Law No. 104-188, 100 Stat. 1755.
SBJPA amended the Portal Act to define circumstances under which pay is
not required for employees who use their employer's vehicle for home-
to-work commuting purposes and also amended the FLSA by creating a
youth opportunity wage and modifying the allowable tip credit.
A. Employee Commuting Flexibility Act of 1996
Sections 2101 through 2103 of Title II of SBJPA, entitled the
``Employee Commuting Flexibility Act of 1996,'' amended section 4(a) of
the Portal Act, 29 U.S.C. 254(a). The amendment, effective upon
enactment, provides that
The use of an employer's vehicle for travel by an employee and
activities performed by an employee which are incidental to the use
of such vehicle for commuting shall not be considered part of the
employee's principal activities if the use of such vehicle for
travel is within the normal commuting area for the employer's
business or establishment and the use of the employer's vehicle is
subject to an agreement on the part of the employer and the employee
or representative of such employee.
Employee Commuting Flexibility Act of 1996, Section 2102, 29 U.S.C.
254(a).
The House Committee Report states that the purpose of the amendment
is to clarify how the Portal Act applies to ``employee use of employer-
provided vehicles for commuting at the beginning and end of the
workday.'' H.R. Rep. No. 104-585, at 6 (1996). It states that such
travel time is to be considered noncompensable if the use of the
vehicle is ``conducted under an agreement between the employer and the
employee or the employee's representative.'' Id. The agreement may be a
formal written agreement, a collective bargaining agreement, or an
understanding based on established industry or company practices. Id.
In addition, ``the work sites must be located within the normal
commuting area of the employer's establishment.'' Id. at 4-5.
Activities that are merely incidental to the use of the vehicle for
commuting at the start or end of the day are similarly noncompensable,
such as communication between the employee and employer to obtain
assignments or instructions, or to report work progress or completion.
Id. at 5.
This statutory amendment to the Portal Act affects certain
regulations in 29 CFR parts 785 and 790 issued pursuant to the FLSA and
the Portal Act. Current section 785.9(a) explains the statutory
provisions that eliminate from working time certain ``preliminary'' and
``postliminary'' activities performed prior to or subsequent to the
workday. To incorporate this amendment, this proposed rule adds to that
section the new provision that activities that are incidental to the
use of an employer-provided vehicle for commuting are not considered
principal activities, and are not compensable, when they meet the
conditions of the amendment. Current Sec. 785.34 discusses the effect
of section 4 of the Portal Act on determining whether time spent in
travel is working time. This proposed rule adds a reference to the
statutory conditions under which commuting in an employer-provided
vehicle will not be considered part of the employee's principal
activities and will not be compensable. The proposed rule also revises
Sec. Sec. 785.50 and 790.3 to incorporate the 1996 amendment into the
quotation of section 4 of the Portal Act.
B. Youth Opportunity Wage
Section 2105 of the SBJPA amended the FLSA by adding section 6(g),
which provides that ``[a]ny employer may pay any employee of such
employer, during the first 90 consecutive calendar days after such
employee is initially employed by such employer, a wage which is not
less than $4.25 an hour.'' 29 U.S.C. 206(g)(1). This subminimum wage
``shall only apply to an employee who has not attained the age of 20
years.'' 29 U.S.C. 206(g)(4). The amendment also protects current
workers by prohibiting employers from taking action to displace
employees, including reducing hours, wages, or employment benefits, for
the purpose of hiring workers at the opportunity wage. It also states
that any employer violating this subsection shall be considered to have
violated the anti-discrimination provisions of section 15(a)(3) of the
FLSA. 29 U.S.C. 206(g)(3).
In this proposed rule, the Department adds a new subpart G to 29
CFR part 786--which will be renamed Miscellaneous Exemptions and
Exclusions From Coverage--to set forth the provisions of this new youth
opportunity wage.
C. Minimum Wage Increase Act of 1996
Section 2105 of Title II of the SBJPA, entitled the ``Minimum Wage
Increase Act of 1996,'' amended section 3(m) of the FLSA, 29 U.S.C.
203(m), by providing that
In determining the wage an employer is required to pay a tipped
employee, the amount paid such employee by the employee's employer
shall be an amount equal to--
(1) The cash wage paid such employee which for purposes of such
determination shall be not less than the cash wage required to be
paid such an employee on the date of the enactment of this
paragraph; and
(2) An additional amount on account of the tips received by such
employee which amount is equal to the difference between the wage
specified in paragraph (1) and the wage in effect under section
6(a)(1).
The additional amount on account of tips may not exceed the
value of the tips actually received by an employee. The preceding 2
[[Page 43657]]
sentences shall not apply with respect to any tipped employee unless
such employee has been informed by the employer of the provisions of
this subsection, and all tips received by such employee have been
retained by the employee, except that this subsection shall not be
construed to prohibit the pooling of tips among employees who
customarily and regularly receive tips.
Public Law No. 104-188, Sec. 2105(b) (1996). Prior to the 1996
amendments, section 3(m) of the FLSA required an employer to pay its
tipped employees a cash wage equal to 50 percent of the minimum wage
(then $4.25 an hour). See Public Law No. 101-157, Sec. 5 (1989);
Public Law No. 93-259, Sec. 13(e) (1974); 29 CFR 531.50. As amended,
section 3(m)(1) provides that an employer's minimum cash wage
obligation to its tipped employees is the minimum cash wage required on
August 20, 1996, the date of the SBJPA enactment. Thus, section 3(m)(1)
established an employer's cash wage obligations to tipped employees at
the pre-SBJPA amount: 50 percent of the then-minimum wage of $4.25 per
hour, or $2.13 per hour. See 29 U.S.C. Sec. 203(m)(1).
Subsection (2) of the 1996 amendments bases an employer's maximum
allowable tip credit on a specific formula in relation to the
applicable minimum wage, stating that an employer may take a tip credit
equal to the difference between the required minimum cash wage
specified in paragraph 3(m)(1) ($2.13) and the minimum wage (now
$5.85). Thus, the maximum tip credit that an employer currently is
permitted to claim is $5.85 minus $2.13, or $3.72 per hour. (Effective
July 24, 2008, the minimum wage required by the FLSA will increase to
$6.55 an hour, resulting in a maximum federal tip credit limited to
$4.42 an hour. Effective July 24, 2009, the minimum wage required by
section 6(a)(1) of the FLSA will increase to $7.25 an hour, resulting
in a maximum federal tip credit limited to $5.12 an hour.)
This 1996 amendment affects certain regulations in 29 CFR part 531.
Current Sec. 531.50(a) quotes section 3(m) of the FLSA as it appeared
before the 1996 amendments. To incorporate the 1996 amendment, this
proposed rule replaces the old statutory language with the current
statutory provision. Current Sec. Sec. 531.56(d), 531.59, and 531.60
refer to the pre-1996 statutory language setting the tip credit at 50
percent of the minimum wage. The proposed rule deletes or changes these
references to reflect the current statutory requirements (tip credit
equaling the difference between the minimum wage required by section
6(a)(1) of the FLSA and the $2.13 required cash wage). Additional
changes related to tipped employees are discussed in this preamble at
sections 7B and 8, infra.
3. Agricultural Workers on Water Storage/Irrigation Projects
Section 105 of The Departments of Labor, Health, and Human
Services, Education, and Related Agencies Appropriations Act, Public
Law No. 105-78, 111 Stat. 1467 (Nov. 13, 1997), amended section
13(b)(12) of the FLSA, 29 U.S.C. 213(b)(12), which provides an overtime
exemption for agricultural employees and employees employed in
connection with the operation or maintenance of certain waterways used
for supply and storing of water for agricultural purposes. The 1997
amendment deleted ``water for agricultural purposes'' and substituted
``water, at least 90 percent of which was ultimately delivered for
agricultural purposes during the preceding calendar year.'' Thus, this
amendment makes the exemption from overtime pay requirements applicable
to workers on water storage and irrigation projects where at least 90
percent of the water is used for agricultural purposes, rather than
where the water is used exclusively for agricultural purposes.
In this proposed rule, the Department updates the regulations in 29
CFR part 780, Subpart E to incorporate the statutory amendment. Thus,
proposed Sec. 780.400 correctly quotes the statute, including the
amendment. Section 780.401 provides an updated general explanatory
statement of the history of the exemption. Section 780.406 deletes the
last sentence of the current rule, which refers to the 1966 amendments,
as no longer necessary. Finally, Sec. 780.408 is updated to describe
the ``at least 90 percent'' requirement for using the water for
agricultural purposes.
4. Certain Volunteers at Private Non-Profit Food Banks
Section 1 of the Amy Somers Volunteers at Food Banks Act, Public
Law No. 105-221, 112 Stat. 1248 (Aug. 7, 1998), amended section 3(e) of
the FLSA, 29 U.S.C. 203(e), by adding section (5) to provide that the
term ``employee'' does not include individuals volunteering solely for
humanitarian purposes at private non-profit food banks and who receive
groceries from those food banks given in recognition of such
individual's needs and not in exchange for such individual's services.
29 U.S.C. 203(e)(5). This proposed rule renames 29 CFR part 786 to
``Miscellaneous Exemptions and Exclusions From Coverage'' and adds
Subpart H to set forth this exclusion from FLSA coverage.
5. Employees Engaged in Fire Protection Activities
In 1999, Congress amended section 3 of the FLSA, 29 U.S.C. 203, by
adding section (y) to define ``an employee in fire protection
activities.'' This amendment states that an ``employee in fire
protection activities'' means
an employee, including a firefighter, paramedic, emergency medical
technician, rescue worker, ambulance personnel, or hazardous
material worker, who--(1) is trained in fire suppression, has the
legal authority and responsibility to engage in fire suppression,
and is employed by a fire department of a municipality, county, fire
district, or State; and (2) is engaged in the prevention, control,
and extinguishment of fires or response to emergency situations
where life, property, or the environment is at risk.
Public Law No. 106-151, 113 Stat. 1731 (1999); 29 U.S.C. 203(y). Such
employees may be covered by the partial overtime exemption allowed by
Sec. 7(k) or the overtime exemption for public agencies with fewer
than five employees in fire protection activities pursuant to Sec.
13(b)(20). 29 U.S.C. 207(k); 213(b)(20).
This proposed rule makes several revisions to 29 CFR part 553,
Subpart C, to incorporate this amendment. In the first sentence of
proposed Sec. 553.210(a), the statutory amendment language is
substituted for the current four-part regulatory definition of the term
``any employee * * * in fire protection activities.'' The proposed rule
also deletes the last sentence of current section 553.210(a) stating
that, ``[t]he term would also include rescue and ambulance service
personnel if such personnel form an integral part of the public
agency's fire protection services,'' and it deletes the cross-reference
to section 553.215. The ``integral part'' test for the public agency
employees is no longer needed because the new statutory standards
define when such rescue and ambulance personnel qualify as employees in
fire protection activities. Section 553.215(a) of the current rule
discusses ambulance and rescue service employees who are employees of a
public agency other than a fire protection or law enforcement agency.
The section 3(y) amendment, however, specifically states that one of
the requirements to be an ``employee in fire protection activities'' is
that the employee is employed by a fire department of a municipality,
county, fire district, or State. The proposed rule, therefore, deletes
section 553.215(a)
[[Page 43658]]
because it permits non-fire department public agencies to treat their
ambulance and rescue service employees as employees engaged in fire
protection activities, contrary to the new statutory conditions. This
proposed rule also deletes Sec. Sec. 553.215(b) (stating that rescue
service employees of hospitals and nursing homes cannot qualify for the
exemption) and 553.215(c) (stating that ambulance and rescue service
employees of private organizations do not come within the exemption) as
unnecessary in light of the clear statutory requirement for employment
by a fire department. Finally, in Sec. Sec. 553.221, 553.222, 553.223,
and 553.226, the Department is substituting ``employee in fire
protection activities'' or ``employees in fire protection activities,''
respectively, wherever the terms ``firefighter'' or ``firefighters''
appeared.
The Department reexamined the other regulations in part 553,
Subpart C, in light of the section 3(y) amendment to assess whether any
other changes were appropriate. Current Sec. 553.210 characterizes as
exempt work related incidental activities such as equipment
maintenance, lecturing and fire prevention inspections. Current Sec.
553.210 also recognizes that employees can come within the exemption
whether their status is ``trainee,'' ``probationary,'' or
``permanent,'' and regardless of their particular specialty or job
title or assignment to certain support activities. The Department
believes that these provisions are consistent with statutory intent and
remain the appropriate interpretation of the new statutory definition
and, thus, makes no further changes to section 553.210.
Current section 553.212 recognizes that exempt employees may engage
in some nonexempt work, such as firefighters who work for forest
conservation agencies and who plant trees and perform other
conservation activities unrelated to their firefighting duties during
slack times. The Department reexamined this regulation, particularly in
light of the court's decision in McGavock v. City of Water Valley, 452
F.3d 423 (5th Cir. 2006). That court noted that the Department had not
updated its regulations since the passage of section 3(y). It found
that the regulation at Sec. 553.210, defining an employee in fire
protection activities, was supplanted by the amendment. It also
concluded that the 20% tolerance for nonexempt work in Sec. 553.212
simply put a gloss on the pre-existing regulatory definition.
Therefore, the court concluded that Sec. Sec. 553.210 and 553.212 were
``obsolete and without effect.'' 452 F.3d at 428. See also Huff v.
DeKalb County, Ga., 516 F.3d 1273, 1278 (11th Cir. 2008) (agreeing that
new section 3(y) is a streamlined definition that made existing
provisions in Sec. Sec. 553.210 and 553.212 obsolete). Congress stated
in section 3(y) that an employee must be ``engaged in the prevention,
control, and extinguishment of fires or response to emergency
situations where life, property, or the environment is at risk'' in
order to qualify as an employee in fire protection activities. 29
U.S.C. 203(y). Congress thus defined emergency medical response work as
exempt work, when performed by an employee who meets the other tests in
section 3(y). This proposed rule therefore deletes Sec. 553.212 as
unnecessary in light of the court decisions and statutory amendment.
6. Stock Options Excluded From the Computation of the Regular Rate
The Worker Economic Opportunity Act, Public Law No. 106-202, 114
Stat. 308, enacted by Congress on May 18, 2000, amended Sec. Sec. 7(e)
and 7(h) of the FLSA. 29 U.S.C. 207(e), (h). In Sec. 7(e), a new
subsection (8) adds ``[a]ny value or income derived from employer-
provided grants or rights provided pursuant to a stock option, stock
appreciation right, or bona fide employee stock purchase program''
meeting particular criteria to the types of remuneration that are
excluded from the computation of the regular rate. In Sec. 7(h), the
amendment clarifies that the amounts excluded under Sec. 7(e) may not
be counted toward the employer's minimum wage requirement under section
6, and that extra compensation excluded pursuant to the new subsection
(8) may not be counted toward overtime pay under Sec. 7.
The proposed rule incorporates the amendments made by the Worker
Economic Opportunity Act by adding to the regulatory provisions which
simply quote the statute in section 778.200(a) and (b). Section 778.208
also is revised simply to update from ``seven'' to ``eight'' the number
of types of remuneration excluded in computing the regular rate.
7. Fair Labor Standards Act Amendments of 1974
A. Service Advisors Working for Automobile Dealerships and Boat
Salespersons
On April 7, 1974, Congress enacted an amendment to section
13(b)(10)(B) of the FLSA, 29 U.S.C. 213(b)(10)(B). Public Law No. 93-
259, 88 Stat. 55 (1974). This amendment added an overtime exemption for
salespersons primarily engaged in selling boats (in addition to the
pre-existing exemption for sellers of trailers or aircraft). This
amendment also eliminated the overtime exemption for partsmen and
mechanics servicing trailers or aircraft. This proposed rule revises 29
CFR part 779, Subpart D--Exemptions for Certain Retail or Service
Establishments, so that the regulations implementing section
13(b)(10)(B) conform to this 1974 amendment. Section 779.371(a) is
revised to reflect the amendment's addition of boat salespersons to the
exemption. Proposed Sec. 779.372(a) now clarifies that salespersons
primarily engaged in selling trailers, boats, or aircraft, but not
partsmen or mechanics for such vehicles, are covered by the exemption;
portions of Sec. 779.372(b) and (c) also are changed accordingly.
Section 13(b)(10)(A) of the FLSA provides that ``any salesman,
partsman, or mechanic engaged in selling or servicing automobiles,
trucks or farm implements, if he is employed by a nonmanufacturing
establishment primarily engaged in the business of selling such
vehicles or implements to ultimate purchasers'' shall be exempt from
the overtime requirements of the Act. 29 U.S.C. 213(b)(10)(A). The
current regulation at 29 CFR 779.372(c)(4) states that an employee
described as a service manager, service writer, service advisor, or
service salesman, is not exempt under section 13(b)(10)(A).
Uniform appellate and district court decisions, however, hold that
service advisors are exempt under section 13(b)(10)(A) because they are
``salesmen'' who are primarily engaged in ``servicing'' automobiles.
See, e.g., Walton v. Greenbrier Ford, Inc., 370 F.3d 446, 452 (4th Cir.
2004) (The current regulatory interpretation of this exemption is ``an
impermissibly restrictive construction of the statute.''); Brennan v.
Deel Motors, Inc., 475 F.2d 1095, 1097 (5th Cir. 1973) (Service
advisors are ``functionally similar to the mechanics and partsmen who
service the automobiles. All three work as an integrated unit,
performing the services necessary * * * with the service salesman
coordinating these specialties.''); Brennan v. North Brothers Ford,
Inc., 1975 WL 1074 at *3 (E.D. Mich. 1975) (unpublished) (``The spirit
of 13(b)(10) is best fulfilled by recognizing the functional similarity
of service salesmen to partsmen and mechanics which are both expressly
exempted.''), aff'd sub. nom. Dunlop v. North Brothers Ford, Inc., 529
F.2d 524 (6th Cir. 1976) (Table).
[[Page 43659]]
Based upon the court decisions, the Wage and Hour Division has
adopted an enforcement position since 1987 that Wage and Hour ``will no
longer deny the [overtime] exemption for such employees,'' and that the
regulation would be revised. See Wage and Hour Division Field
Operations Handbook (FOH) section 24L04(k). Therefore, this proposed
rule changes Sec. 779.372(c), entitled ``Salesman, partsman, or
mechanic,'' to follow the courts' consistent holdings that employees
performing the duties typical of service advisors are within the
section 13(b)(10)(A) exemption. Section 779.372(c)(1) is revised to
include such an employee as a salesman primarily engaged in servicing
automobiles. Section 779.372(c)(4) is rewritten to clarify that such
employees qualify for the exemption.
B. Tipped Employees
Section 3(m) of the FLSA defines the term ``wage'' and includes
conditions for taking tip credits when making wage payments to
qualifying tipped employees under the FLSA. The Department's tip credit
regulations were promulgated in 1967, one year after hotels and
restaurants were brought under the FLSA. Section 13(e) of the Fair
Labor Standards Act Amendments of 1974 amended the last sentence of
section 3(m) by providing that an employer could not take a tip credit
unless:
(1) [its] employee has been informed by the employer of the
provisions of this subsection and (2) all tips received by such
employee have been retained by the employee, except that this
subsection shall not be construed to prohibit the pooling of tips
among employees who customarily and regularly receive tips.
Public Law No. 93-259, Sec. 13(e), 88 Stat. 55.
Prior notice by the employer to employees of the employer's intent
to avail itself of the tip credit is a statutory requirement pursuant
to the 1974 amendments. Courts have disallowed the use of the tip
credit for lack of notice even ``where the employee has actually
received and retained base wages and tips that together amply satisfy
the minimum wage requirements,'' remarking that ``[i]f the penalty for
omitting notice appears harsh, it is also true that notice is not
difficult for the employer to provide.'' Reich v. Chez Robert, Inc., 28
F.3d 401, 404 (3d Cir. 1994) (citing Martin v. Tango's Restaurant, 969
F.2d 1319, 1323 (1st Cir. 1992)). Although written notice is frequently
provided, it is not required to satisfy the employer's notice burden.
Compare Kilgore v. Outback Steakhouse of Florida, Inc., 160 F.3d 294,
299 (6th Cir. 1998) (written notice provided to all applicants as
matter of course), with Pellon v. Business Representation Int'l, Inc.,
528 F. Supp. 2d 1306, 1310-11 (S.D. Fla. 2007), appeal docketed, No.
08-10133 (11th Cir. Jan. 8, 2008) (Section 3(m)'s requirement was met
through verbal notice that plaintiff would be paid $2.13 plus tips,
combined with prominent display of FLSA poster explaining tip credit).
Additionally, while employees must be ``informed'' of the employer's
use of the tip credit, the employer need not ``explain'' the tip
credit. See Kilgore, 160 F.3d at 298 (``[A]n employer must provide
notice to the employees, but need not necessarily `explain' the tip
credit * * * `[I]nform' requires less from an employer than the word
`explain.' ''); cf. Bonham v. Copper Cellar Corp., 476 F. Supp. at 101
& n.6 (``vague references to conversations about the minimum wage'' are
insufficient to establish section 3(m) notice).
The second provision of the 1974 amendments to section 3(m) made it
clear that tipped employees must receive at least the minimum wage and
must generally retain any tips received by them as gratuities for
services performed. An employer, however, can take advantage of a ``tip
credit'' to offset a portion of its minimum wage obligation. Prior to
the 1974 amendments, the compensation of tipped employees was often a
matter of agreement. Tipped employees could agree, for example, that an
employer was only obligated to pay cash wages when an employee's tips
were less than the minimum wage, or that the employee's tips would be
turned over to the employer, who could then use the tips to pay the
minimum wage. See Usery v. Emersons Ltd., 1976 WL 1668, *2 (E.D. Va.
1976), vacated and remanded on other grounds sub. nom. Marshall v.
Emersons Ltd., 593 F.2d 565 (4th Cir. 1979). The 1974 amendments to
section 3(m) were intended to prohibit such agreements. See S. Rep. No.
93-690, at 43 (1974) (``The latter provision is added to make clear the
original Congressional intent that an employer could not use the tips
of a `tipped employee' to satisfy more than 50 percent of the Act's
applicable minimum wage.''). The Department's current regulations,
which were in effect prior to the 1974 amendments and allowed an
employer to require employees to turn over all their tips to the
employer, were therefore invalidated by the amendment to the extent
that turning tips over to the employer effectively cuts into the
minimum wage.
Under the 1974 amendments to section 3(m), an employer's ability to
utilize an employee's tips to satisfy any portion of the employer's
minimum wage obligation was limited to taking a credit against the
employee's tips of up to 50 percent of that obligation. Section 3(m)
provides the only method by which an employer may use tips received by
an employee to satisfy the employer's minimum wage obligation. An
employer's only options under section 3(m) are to take a credit against
the employee's tips of up to the statutory differential, or to pay the
entire minimum wage directly. See Wage and Hour Opinion Letter WH-536,
1989 WL 610348 (October 26, 1989) (defining when an employer does not
claim a tip credit as when the employer does not retain any tips and
pays the employee the minimum wage).
Thus, in a situation in which an employee earns $10 an hour in tips
and the employer pays $2.13 an hour in cash wages and claims the
statutory maximum as a tip credit, the employee has received only the
minimum wage under section 3(m). (Under section 3(m), the ``wage'' of a
tipped employee equals the sum of the cash wage paid by the employer
and the amount it claimed as a tip credit.) The amount of tips the
employee received in excess of the tip credit are not considered
``wages'' paid by the employer and any deductions from the employee's
tips made by the employer would therefore result in a violation of the
employer's minimum wage obligation. If, however, the employer paid the
employee a direct wage in excess of the minimum wage--and thus did not
claim a credit against any portion of the employee's tips--the employer
would be able to make deductions so long as they did not reduce the
direct wage payment below the minimum wage. See Wage and Hour Opinion
Letter WH-536, 1989 WL 610348 (October 26, 1989). In such a situation,
the deduction would be viewed as coming from the employer's wage
payment that exceeds the minimum wage.
The proposed rule updates the regulations to incorporate the 1974
amendments, the legislative history, subsequent court decisions, and
the Department's interpretations. Sections 531.52, 531.55(a),
531.55(b), and 531.59 eliminate references to employment agreements
providing either that tips are the property of the employer or that
employees will turn tips over to their employers, and clarify that the
availability of the tip credit provided by section 3(m) requires that
all tips
[[Page 43660]]
received must be paid out to tipped employees in accordance with the
1974 amendments. Section 531.55(a), which describes compulsory service
charges, also is updated by changing the example of such a charge from
10 percent to 15 percent to reflect more current customary industry
practices.
The 1974 amendments also clarified that section 3(m)'s statement
that employees must retain their tips does not preclude the practice of
tip pooling ``among employees who customarily and regularly receive
tips.'' 29 U.S.C. 203(m). The Department's regulation on the subject
provides that ``the amounts received and retained by each individual
[through a tip pooling arrangement] as his own are counted as his tips
for purposes of the Act.'' 29 CFR 531.54.
Wage and Hour interpreted the tip pooling clause more fully in
opinion letters and in its FOH. The FOH provides, for example, that a
tip pooling arrangement cannot require employees to contribute a
greater percentage of their tips to the tip pool than is ``customary
and reasonable.'' FOH section 30d04(b). The agency expanded upon this
position, in its opinion letters and in litigation, that ``customary
and reasonable'' equates to 15 percent of an employee's tips or two
percent of daily gross sales. See, e.g., Wage and Hour Opinion Letter
WH-468, 1978 WL 51429 (Sept. 5, 1978). Several courts have rejected the
agency's maximum contribution percentages, however, ``because neither
the statute nor the regulations mention [the requirement stated in the
agency interpretation] and the opinion letters do not explain the
statutory source for the limitation that they create.'' Kilgore v.
Outback Steakhouse of Fla., Inc., 160 F.3d 294, 302-03 (6th Cir. 1998);
see Davis v. B&S, Inc., 38 F. Supp. 2d 707, 718 n.16 (N.D. Ind. 1998)
(citing Dole v. Continental Cuisine, Inc., 751 F. Supp. 799, 803 (E.D.
Ark. 1990) (``The Court can find no statutory or regulatory authority
for the Secretary's opinion [articulated in an opinion letter] that
contributions in excess of 15% of tips or 2% of daily gross sales are
excessive.'')). Based on these court decisions and the unequivocal
statutory language, the proposed rule updates Sec. 531.54 to clarify
that section 3(m) of the FLSA does not impose a maximum tip pool
contribution percentage. However, the proposed rule states that the
employer must inform each employee of the required tip pool
contribution, and an employee's participation in a tip pool cannot
bring the employee's wages below the minimum wage.
The 1974 amendments also revised another aspect of section 3(m).
Prior to the 1974 amendments, section 3(m) of the FLSA provided that an
employee could petition the Wage and Hour Administrator to review the
tip credit claimed by an employer. See Public Law No. 89-601, 80 Stat.
830 (1966) (``[I]n the case of an employee who (either himself or
acting through his representative) shows to the satisfaction of the
Secretary that the actual amount of tips received by him was less than
the amount determined by the employer as the amount by which the wage
paid him was deemed to be increased * * * the amount paid such employee
by his employer shall be deemed to have been increased by such lesser
amount.''). The 1974 amendments eliminated the review clause to clarify
that the employer, not the employee, bears the ultimate burden of
proving ``the amount of tip credit, if any, [he] is entitled to
claim.'' S. Rep. No. 93-690, at 43. Two outdated regulatory provisions
promulgated in 1967, however, still purport to permit petitions to the
Wage and Hour Administrator for tip credit review despite the fact that
the statute no longer provides for this review. See 29 CFR 531.7,
531.59.
Consistent with the 1974 amendments, this proposed rule deletes
section 531.7, which permits employees to petition the Wage and Hour
Administrator for tip credit review. References to the Administrator's
review in section 531.59 are also deleted, and the language is updated
to reflect the burden on the employer to prove the amount of the tip
credit to which it is entitled.
8. Fair Labor Standards Act Amendments of 1977
On November 1, 1977, Congress amended section 3(t) of the FLSA, 29
U.S.C. 203(t). Public Law No. 95-151, Sec. 3(a), 91 Stat. 1245.
Section 3(t) of the FLSA defines the phrase ``tipped employee.'' Prior
to the 1977 amendment, the definition encompassed ``any employee
engaged in an occupation in which he customarily and regularly receives
more than $20 a month in tips.'' The 1977 amendment raised the
threshold in section 3(t) to $30 a month in tips.
To reflect the 1977 amendment, this proposed rule changes the
references in 29 CFR 531.50(b), 531.51, 531.56(a)-(e), 531.57, and
531.58 from $20 to $30.
9. Meal Credit Under Section 3(m)
The proposed rule further amends Sec. 531.30 to incorporate Wage
and Hour's longstanding enforcement position regarding the voluntary
acceptance of meals. A ``wage'' paid pursuant to section 3(m) of the
FLSA may include ``the reasonable cost * * * to the employer of
furnishing * * * board, lodging, or other facilities * * * customarily
furnished by such employer to his employees.'' 29 U.S.C. 203(m).
``Facilities'' include employer-provided meals. See 29 CFR 531.32. The
Department's regulation at 29 CFR 531.30, however, provides that an
employer's ability to take credit for a facility is limited to those
instances where an employee's acceptance was ``voluntary and
uncoerced.'' In other words, an employer could not take a wage credit
for employees who did not choose to accept the meal.
After a number of courts rejected the agency's position on this
point with regard to credit for meals, the agency adopted an
enforcement position providing that an employer can take a meal credit
even if an employee does not voluntarily accept the meal. See FOH
section 30c09(b) (``WH no longer enforces the `voluntary' provision
with respect to meals.''); see also Davis Bros., Inc. v. Donovan, 700
F.2d 1368, 1370 (11th Cir. 1983); Donovan v. Miller Properties, Inc.,
711 F.2d 49, 50 (5th Cir. 1983).
Thus, under the agency's current enforcement policy articulated in
the FOH, an employer may require an employee to accept a meal provided
by the employer as a condition of employment, and may take credit for
the actual cost of that meal even if the employee's acceptance is not
voluntary. The proposed rule amends 29 CFR 531.30 to reflect previous
court decisions and the agency's current enforcement posture on meal
credits.
10. Section 7(o) Compensatory Time Off
Section 7 of the FLSA requires that a covered employee receive
compensation for hours worked in excess of 40 in a workweek at a rate
not less than one and one-half times the regular rate of pay at which
the employee is employed. 29 U.S.C. 207(a). In 1985, subsequent to the
U.S. Supreme Court's decision in Garcia v. San Antonio Metropolitan
Transit Authority, 469 U.S. 528 (1985), which held that the FLSA may be
constitutionally applied to state and local governments, Congress added
section 7(o), 29 U.S.C. 207(o), to the FLSA to permit public agencies
to grant employees compensatory time off in lieu of cash overtime
compensation pursuant to an agreement with employees or their
representatives. The purpose of this exception to the Act's usual
requirement of cash overtime pay was ``to provide flexibility to state
and local government employers and an
[[Page 43661]]
element of choice to their employees regarding compensation for
statutory overtime hours.'' H.R. Rep. No. 331, 99th Cong., 1st Sess. 19
(1985).
Section 7(o) provides a detailed scheme for the accrual and use of
compensatory time off. Subsection 7(o)(1) authorizes the provision of
compensatory time off in lieu of overtime pay. Subsection 7(o)(2)
specifies how a public employer creates a compensatory time off plan.
Subsection 7(o)(3) establishes limits for the amount of compensatory
time off that an employee may accrue. Section 7(o)(4) provides the
requirements for cashing out compensatory time upon an employee's
termination. Section 7(o)(5) governs a public employee's use of accrued
compensatory leave. That section states:
An employee of a public agency which is a State, political
subdivision of a State, or an interstate governmental agency--(A)
who has accrued compensatory time off authorized to be provided
under paragraph (1), and (B) who has requested the use of such
compensatory time, shall be permitted by the employee's employer to
use such time within a reasonable period after making the request if
the use of the compensatory time does not unduly disrupt the
operations of the public agency.
29 U.S.C. 207(o)(5)(A), (B).
In 1987, after notice and comment, the Department issued final
regulations implementing section 7(o) (29 CFR 553.20-.28). Section
553.25 of the regulations implements section 7(o)(5)'s requirements
regarding the use of compensatory time off. Section 553.25(c) provides:
(1) Whether a request to use compensatory time has been granted
within a ``reasonable period'' will be determined by considering the
customary work practices within the agency based on the facts and
circumstances in each case. Such practices include, but are not
limited to (a) the normal schedule of work, (b) anticipated peak
workloads based on past experience, (c) emergency requirements for
staff and services, and (d) the availability of qualified substitute
staff.
(2) The use of compensatory time in lieu of cash payment for
overtime must be pursuant to some form of agreement or understanding
between the employers and the employee (or the representative of the
employee) reached prior to the performance of the work. (See Sec.
553.23). To the extent that the []conditions under which an employee
can take compensatory time off are contained in an agreement or
understanding as defined in Sec. 553.23, the terms of such
agreement or understanding will govern the meaning of ``reasonable
period''.
Section 553.25(d) states:
When an employer receives a request for compensatory time off,
it shall be honored unless to do so would be ``unduly disruptive''
to the agency's operations. Mere inconvenience to the employer is an
insufficient basis for denial of a request for compensatory time
off. (See H. Rep. 99-331, p. 23.) For an agency to turn down a
request from an employee for compensatory time off requires that it
should reasonably and in good faith anticipate that it would impose
an unreasonable burden on the agency's ability to provide services
of acceptable quality and quantity for the public during the time
requested without the use of the employee's services.
In recent years, a number of courts have examined the proper
interpretation of section 7(o)(5)(B)'s ``reasonable period''
requirement with regard to whether an employer must allow an employee
to take off the specific days that the employee requests unless that
time off would cause an undue disruption.
In Mortensen v. County of Sacramento, 368 F.3d 1082 (9th Cir.
2004), the court held that under section 7(o)(5)(B), a public agency
may deny its employees the right to use accrued compensatory time off
on the specific days they request, without establishing that such use
of compensatory time would ``unduly disrupt the operations of the
public agency.'' The court relied upon the statutory language providing
that an employee who has requested the use of compensatory time ``shall
be permitted * * * to use such time within a reasonable period after
making the request.'' 29 U.S.C. 207(o)(5)(B). The court held that this
language unambiguously states that once an employee requests
compensatory time off, the employer must allow the employee to use the
time within a reasonable period after the request and, thus, it does
not require the employer to grant the time off on the specific days
requested. In the court's opinion, section 7(o)(5)(B)'s ``unduly
disrupt'' clause merely indicates the condition that releases an
employer from the obligation to permit the use of compensatory time
within a ``reasonable period'' after it is requested. Because the court
found no ambiguity in the statute, it declined to defer to the
Department's regulation at 29 CFR 553.25(d). Accord Scott v. City of
New York, 340 F. Supp. 2d 371, 380 (S.D.N.Y. 2004).
Similarly, in Houston Police Officers Union v. City of Houston, 330
F.3d 298 (5th Cir.), cert. denied, 540 U.S. 879 (2003), the court held
that the plain language of section 207(o)(5)(B) does not require a
public agency to grant compensatory time off on the date specifically
requested, but instead requires that the agency permit the leave within
a reasonable period after the employee requests its use. The court
stated that ``mandating a `reasonable period' for use of comp time is
different from mandating the employee's chosen dates. The language
offers a span of time to the employer, the beginning of which is the
date of the employee's request.'' 330 F.3d at 303. The court noted that
if granting the request would unduly disrupt operations, the public
agency is released from the previously imposed requirement. Because the
court deemed the statutory language unambiguous, it held that deference
to the Department's regulation would be inappropriate. Moreover, the
court stated that even if the statute were ambiguous, the regulation at
section 553.25(d) ``simply does not address whether the statute
mandates an employee's specifically requested dates for comp time.''
330 F.3d at 304. The court (330 F.3d at 304-05) also refused to defer
to the Department's amicus curiae brief filed in DeBraska v. City of
Milwaukee, 131 F. Supp. 2d 1032 (E.D. Wis. 2000).\1\
---------------------------------------------------------------------------
\1\ In contrast to Houston Police Officers Union, the district
court in DeBraska v. City of Milwaukee, 131 F. Supp. 2d at 1034,
found that the statute was ``somewhat ambiguous.'' The court held
that section 7(o)(5)(B) establishes that if an employee gives
reasonable notice of a request for compensatory time, the specific
days requested must be granted unless the employer demonstrates that
the leave would unduly disrupt the employer's services to the
public. The court thus agreed with the interpretation of section
7(o)(5) presented in the Department's amicus curiae brief, and it
concluded that the current regulations support this view, because
Sec. 553.25(d) provides that in order to deny a compensatory leave
request an agency must believe that granting the leave would
``impose an unreasonable burden on the agency's ability to provide
services of acceptable quality and quantity for the public during
the time requested[.]'' (Emphasis added). The court stated that
granting time off on an alternate date would be inconsistent with
this phrase.
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In Aiken v. City of Memphis, 190 F.3d 753 (6th Cir. 1999), cert.
denied, 528 U.S. 1157 (2000), the court held that the plaintiffs-police
officers' collective bargaining agreement with the City of Memphis
permitted the City to deny the specific day requested for the use of
compensatory time without a showing that such use would unduly disrupt
its operations. Under the agreement, the City required police officers
requesting compensatory time to sign the precinct's ``comp time'' log
book within 30 days of the requested day off. Once the commanding
officer determined that additional requests for a particular day would
adversely affect the functioning of the unit, no additional requests
for the use of compensatory time on that day were allowed.
The plaintiffs-police officers argued that the City's practice of
denying officers the use of compensatory time off on a particular day
violated section 7(o)(5)(B) because the City denied the leave without
satisfying the ``unduly
[[Page 43662]]
disrupt'' standard. The court rejected the argument on the ground that
it ``completely ignores the phrase `reasonable period,' which the Act
gives the parties the freedom to define.'' 190 F.3d at 756 (citations
omitted). The court noted that the regulations provide that to the
extent that the parties' agreement specifies ``the conditions under
which an employee can take compensatory time off * * * the terms of
such agreement or understanding will govern the meaning of `reasonable
period.' '' 190 F.3d at 756-57 (quoting 29 CFR 553.25(c)(2)). The court
reasoned that the parties had agreed that ``the reasonable period for
requesting the use of banked compensatory time begins thirty days prior
to the day in question and ends when the number of officers requesting
the use of compensatory time on the given date would bring the
precinct's staffing levels to the minimum level necessary for efficient
operation.'' 190 F.3d at 757. Therefore, on this basis, the court
upheld the district court's determination that the City had not
violated section 7(o)(5)(B). See Beck v. City of Cleveland, 390 F.3d
912 (6th Cir. 2004), cert. denied, 125 S. Ct. 2930 (2005) (Aiken
involved the ``reasonable period'' clause of section 7(o)(5)(B)).
The appellate decisions uniformly read the statutory language
unambiguously to state that once an employee requests compensatory time
off, the employer has a reasonable period of time to allow the employee
to use the time, unless doing so would be unduly disruptive. The
Department proposes to revise the current rule to adhere to the
appellate court rulings cited above. Proposed Sec. 553.25(c) adds a
sentence that states that section 7(o)(5)(B) does not require a public
agency to allow the use of compensatory time on the day specifically
requested, but only requires that the agency permit the use of the time
within a reasonable period after the employee makes the request, unless
the use would unduly disrupt the agency's operations. Additionally, the
phrase ``within a reasonable period after the request'' has been added
to the final sentence of proposed Sec. 553.25(d) and the phrase
``during the time requested'' has been replaced with ``during the time
off'' to clarify the employer's obligation.
11. Fluctuating Workweek Method of Computing Overtime Under 29 CFR
778.114
The proposed rule would also clarify the Department's regulation at
29 CFR 778.114 addressing the fluctuating workweek method of computing
overtime compensation for salaried nonexempt employees. The current
regulation provides that an employer may use the fluctuating workweek
method for computing half-time overtime compensation if an employee
works fluctuating hours from week to week and receives, pursuant to an
understanding with the employer, a fixed salary as straight-time
compensation ``(apart from overtime premiums)'' for whatever hours the
employee is called upon to work in a workweek, whether few or many. In
such cases, an employer satisfies the overtime pay requirement of
section 7(a) of the FLSA if it compensates the employee, in addition to
the salary amount, at least one-half of the regular rate of pay for the
hours worked in excess of 40 hours in each workweek. Because the
employee's hours of work fluctuate from week to week, the regular rate
must be determined separately each week based on the number of hours
actually worked each week. The payment of additional bonus supplements
and premium payments to employees compensated under the fluctuating
workweek method has presented challenges to both employers and the
courts in applying the current regulations.
The proposed regulation provides that bona fide bonus or premium
payments do not invalidate the fluctuating workweek method of
compensation, but that such payments (as well as ``overtime premiums'')
must be included in the calculation of the regular rate unless they are
excluded by FLSA sections 7(e)(1)-(8). The proposal also adds an
example to Sec. 778.114(b) to illustrate these principles where an
employer pays an employee a nightshift differential in addition to a
fixed salary.
Paying employees bonus or premium payments for certain activities
such as working undesirable hours is a common and beneficial practice
for employees. Moreover, the Department's proposed clarification is
consistent with the Supreme Court's decision in Overnight Motor
Transportation Co. v. Missel, 316 U.S. 572 (1942), on which the
existing regulation is patterned. That case held that, where a
nonexempt employee had received only a fixed weekly salary (with no
additional overtime premium pay) for working variable irregular hours
that regularly exceeded 40 per week and fluctuated from week to week,
the employer was required to retroactively pay an additional 50% of the
employee's regular rate of pay multiplied by the overtime hours worked
to satisfy the FLSA's time and a half overtime pay requirement. Id. at
573-74, 580-81. The quotient of the weekly wage divided by the number
of hours actually worked each week, including the overtime hours,
determined the ``regular rate at which [the] employee [was] employed''
under the fixed salary arrangement. Id. at 580. The Department's
proposed clarification would eliminate any disincentive for employers
to pay additional bona fide bonus or premium payments.
IV. Paperwork Reduction Act
This rule does not impose new information collection requirements
for purposes of the Paperwork Reduction Act of 1995, 44 U.S.C. 3501 et
seq.
V. Executive Order 12866; Small Business Regulatory Enforcement
Fairness Act; Regulatory Flexibility
This proposed rule is not economically significant within the
meaning of Executive Order 12866, or a ``major rule'' under the
Unfunded Mandates Reform Act or Section 801 of the Small Business
Regulatory Enforcement Fairness Act.
As discussed previously in this preamble, over the years, Congress
has amended the FLSA to refine or to add to exemptions and to clarify
the minimum wage and overtime pay requirements. However, in many cases,
the Department of Labor has not revised the FLSA regulations to comport
with these statutory changes. The Department believes that the existing
outdated regulatory provisions may cause confusion within the regulated
community resulting in inadvertent violations and the costs of
corrective compliance measures to remedy them.
The Department has determined that the proposed changes will not
result in any additional compliance costs for regulated entities
because the current compliance obligations derive from current law and
not the outdated regulatory provisions that have been superseded years
ago.
The Department is aware that this interpretation appears to be
inconsistent with OMB Circular A-4's guidance on the use of analysis
baselines, which states: ``In some cases, substantial portions of a
rule may simply restate statutory requirements that would be self-
implementing, even in the absence of the regulatory action. In these
cases, you should use a pre-statute baseline'' to conduct the
preliminary regulatory impact analysis. However, as the discussion
below indicates, the Department believes the use of a pre-statute
baseline would be extremely difficult for statutes enacted a decade or
more in the past. Fundamental changes in the economy and labor market
(e.g., the introduction of technology, changes in the size and
composition of the labor
[[Page 43663]]
force, changes in the economy that impact the demand for labor, etc.)
would make it difficult, if not impossible, to separate those changes
from changes that resulted from enactment of the statute.
Moreover, the Department believes the economic impacts due to the
statutory changes to the FLSA are typically greatest in the short run
and diminish over time. This is due to labor markets determining the
most efficient way to adjust to the new requirements, and because the
Department believes many of the changes mandated by various revisions
to the FLSA are reflective of the natural evolution of the labor market
and would have become more common even in the absence of regulatory
changes.\2\ Therefore, the impacts resulting from the promulgation of
the proposed regulations are not likely to be measurable. In fact, the
Department anticipates that if implemented as a final rule, this
proposed rule will simply enhance the Department's enforcement of, and
the public's understanding of, compliance obligations under the FLSA by
replacing outdated regulations with updated provisions that reflect
current law.
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\2\ For example, as nominal wages rise over time, the marginal
impact of a fixed minimum wage provision decreases, since it is less
binding on the market.
---------------------------------------------------------------------------
The Department requests comments on this assessment.
1996 and 2007 Amendments to the FLSA Minimum Wage
The current FLSA regulations reference the minimum wage in several
places. In some places the regulations refer to the 1981 minimum wage
of $3.35 while in others they refer to the 1991 minimum wage of $4.25.
In order to avoid the current inconsistencies between the FLSA
regulations and the statute the Department is proposing to revise the
regulations so that they refer to the statutory minimum wage rather
than a specific minimum wage. Since the proposed regulations do not
include any reference to a specific minimum wage, the Department
believes they do not impose the burden of increasing the minimum wage
from the levels specified in the current regulations. That burden was
imposed by the statutory changes and is unrelated to the FLSA
regulations.
Thus, the Department concludes that the only incremental effect of
this proposal on the public from these changes is possibly clearing up
some confusion. This differentiates the minimum wage provisions from
many other rulemakings in which DOL is given little statutory
discretion, but nonetheless is still required to update the CFR.
Small Business Job Protection Act of 1996
Sections 2101 through 2103 of Title II of SBJPA, entitled the
``Employee Commuting Flexibility Act of 1996,'' amended section 4(a) of
the Portal Act, 29 U.S.C. 254(a) to state that for travel time
involving the employee's use of employer-provided vehicles for
commuting at the beginning and end of the workday to be considered
noncompensable, the use of the vehicle must be ``conducted under an
agreement between the employer and the employee or the employee's
representative.'' The Department believes that since 1996 the labor
market has adjusted to this statutory change and that it would be very
difficult, if not impossible, to estimate the impact of this amendment.
It is likely that as part of their overall compensation package, some
employers and their employees have agreed to make the travel time
compensable while others have agreed to make it noncompensable. In
addition, since this provision simply clarifies that compensability
should be subject to an agreement, but does not otherwise restrict the
type of agreement employers and employees may reach, the Department
believes this provision by its nature does not impose a significant
burden on the public. Therefore, the Department concludes that the
proposed regulatory changes will have no measurable effect on the
public except to possibly clear up some confusion.
In addition, section 2105 of the SBJPA amended the FLSA effective
August 20, 1996, by adding section 6(g), 29 U.S.C. 206(g), which
provides that ``[a]ny employer may pay any employee [who has not
attained the age of 20] of such employer, during the first 90
consecutive calendar days after such employee is initially employed by
such employer, a wage which is not less than $4.25 an hour.'' The
Department believes that the labor market has also adjusted to this
change during the period since the enactment of the SBJPA. Although
youths would obviously want to receive the normal minimum wage rather
than the youth wage, some youths will decide to accept the lower youth
wage in order to gain experience in the labor market. Similarly,
although some employers may like to pay the lower youth wage, some may
find compliance with the added requirements associated with the youth
wage not to be worth the savings in wages. Thus, the Department
concludes that the proposed regulatory changes will have no measurable
effect on the public except to possibly clear up some confusion.
Agricultural Workers on Water Storage/Irrigation Projects
Public Law No. 105-78, 111 Stat. 1467 (Nov. 13, 1997), amended
section 13(b)(12) of the FLSA, 29 U.S.C. 213(b)(12), by extending the
exemption from overtime pay requirements applicable to workers on water
storage and irrigation projects where at least 90 percent of the water
is used for agricultural purposes, rather than where the water is used
exclusively for agricultural purposes. The Department believes that the
labor market has also adjusted to this change during the period since
the enactment of the amendment. Although agricultural workers and
workers employed on water storage/irrigation projects listed in the
exemption are not required to be paid time and one-half for the hours
worked in excess of 40 in a work week, their overall compensation will
be determined by market forces. In some cases, employers and their
employees will choose some form of premium overtime pay (even though it
is not mandated by the FLSA) while others may choose a higher salary
with no additional compensation for the hours worked in excess of 40 in
a week. In addition, this provision applies to a relatively small part
of the overall U.S. labor force, thus the Department believes any
possible impacts due to this exemption would likely not be substantial.
Thus, the Department concludes that the proposed regulatory changes
will have no measurable effect on the public except to possibly clear
up some confusion.
Certain Volunteers at Private Non-Profit Food Banks
Section 1 of the Amy Somers Volunteers at Food Banks Act, Public
Law No. 105-221, 112 Stat. 1248 (Aug. 7, 1998), amended section 3(e) of
the FLSA, 29 U.S.C. 203(e), by adding section (5) to provide that the
term ``employee'' does not include individuals volunteering solely for
humanitarian purposes at private non-profit food banks and who receive
groceries from those food banks. 29 U.S.C. 203(e)(5). The Department
believes that the labor market has also adjusted to this change during
the period since the enactment of the amendment. The Department also
believes this regulatory change is not likely to have caused an impact
we would consider significant, since it applies to a small part of the
public and
[[Page 43664]]
simply clarifies that certain individuals may be considered volunteers.
Employees Engaged in Fire Protection Activities
In 1999, Congress amended section 3 of the FLSA, 29 U.S.C. 203, by
adding section (y) to define ``an employee in fire protection
activities.'' This change in definition impacts the employees who may
be covered by the partial overtime exemption allowed by Sec. 7(k) (29
U.S.C. 207(k)) or the overtime exemption for public agencies with fewer
than five employees in fire protection activities pursuant to Sec.
13(b)(20) (29 U.S.C. 213(b)(20)).
The Department believes that these provisions apply to a relatively
small proportion of the labor market, and that the market has adjusted
to this change during the period since the enactment of the amendment.
Although employees engaged in fire protection activities are not
required to be paid time and one-half for the hours worked in excess of
40 in a work week, but rather must be paid overtime pursuant to section
7(k) of the FLSA, 29 U.S.C. 207(k), their overall compensation will be
determined by market forces. In some cases, employers and their
employees will choose some form of premium overtime pay (even where it
is not mandated by the FLSA) while others may choose a higher salary
with no additional compensation for the excess hours.
Similarly, the Department believes that the market has adjusted to
no exemptions for the ambulance and rescue service employees of non-
fire department public agencies (Sec. 553.215(b)), the rescue service
employees of hospitals and nursing homes, and the ambulance and rescue
service employees of private organizations because the statute clearly
requires employment by a fire department for the exemption. While there
may have been some short run effects related to the statutory change,
in the years since the enactment of the statute, employers and their
employees have adjusted to the overtime requirement.
Thus, the Department concludes that the proposed regulatory changes
will have no measurable effect on the public except to possibly clear
up some confusion.
Stock Options Excluded From the Computation of the Regular Rate
The Worker Economic Opportunity Act enacted by Congress on May 18,
2000, amended Sec. Sec. 7(e) and 7(h) of the FLSA. 29 U.S.C. 207(e),
(h). In Sec. 7(e), a new subsection (8) adds ``[a]ny value or income
derived from employer-provided grants or rights provided pursuant to a
stock option, stock appreciation right, or bona fide employee stock
purchase program'' meeting particular criteria to the types of
remuneration that are excluded from the computation of the regular
rate. In Sec. 7(h), the amendment clarifies that the amounts excluded
under Sec. 7(e) may not be counted toward the employer's minimum wage
requirement under section 6, and that extra compensation excluded
pursuant to the new subsection (8) may not be counted toward overtime
pay under Sec. 7. The Department believes that the labor markets have
adjusted to this statute, which provides additional alternatives for
employee compensation, but does not otherwise limit or mandate the
overall levels of compensation owed to any category of worker. The
proposed regulatory changes merely help to correct any confusion in
this area.
Fair Labor Standards Act Amendments of 1974 and 1977
On April 7, 1974, Congress enacted an amendment to section
13(b)(10)(B) of the FLSA, 29 U.S.C. 213(b)(10)(B). Public Law No. 93-
259, 88 Stat. 55 (1974). This amendment added an overtime exemption for
salespersons primarily engaged in selling boats (in addition to the
pre-existing exemption for sellers of trailers or aircraft). This
amendment also eliminated the overtime exemption for partsmen and
mechanics servicing trailers or aircraft.
The Department believes that these provisions apply to a relatively
small proportion of the labor market, and that the labor market has
also adjusted to this change during the long period since the enactment
of the amendment. Although salespersons primarily engaged in selling
boats are not required to be paid time and one-half for the hours
worked in excess of 40 in a work week, their overall compensation will
be determined by market forces. In some cases, employers and their
employees may choose some form of premium overtime pay (even though it
is not mandated by the FLSA) while others may choose a higher salary
and commissions with no additional compensation for the hours worked in
excess of 40 in a week.
Similarly, the Department believes that the market has adjusted to
no exemptions for partsmen and mechanics servicing trailers or
aircraft. Although there may have been some short run effects related
to the statutory change, in the years since enactment of the statute,
employers and their employees have adjusted to the overtime
requirement. Thus, the Department concludes that the proposed
regulatory changes will have no measurable effect on the public except
to possibly clear up some confusion.
On November 1, 1977, Congress amended section 3(t) of the FLSA, 29
U.S.C. 203(t). Public Law No. 95-151, Sec. 3(a), 91 Stat. 1245.
Section 3(t) of the FLSA defines the phrase ``tipped employee.'' The
amendment changed the conditions for taking the tip credit when making
wage payments to qualifying tipped employees under the FLSA. Prior to
the 1977 amendment, the definition encompassed ``any employee engaged
in an occupation in which he customarily and regularly receives more
than $20 a month in tips.'' The 1977 amendment raised the threshold in
section 3(t) to $30 a month in tips.
Although the mandatory paid wage ($2.13) for tipped employees is
below the minimum wage, these workers must still receive hourly
compensation (cash wages plus tips) at least equal to the minimum wage.
Moreover, regardless of the minimum wage, if the hourly compensation is
too low employers will have trouble finding a sufficient number of
workers. The Department believes that the labor market has also
adjusted to this change during the period since the enactment of the
amendment and that the regulatory changes will have no measurable
economic effect on the public except to possibly clear up some
confusion.
Meal Credit Under Section 3(m)
The proposed rule further amends Sec. 531.30 to incorporate Wage
and Hour's longstanding enforcement position regarding the voluntary
acceptance of meals. The Department's current regulation at 29 CFR
531.30 provides that an employer's ability to take credit for a
facility is limited to those instances where an employee's acceptance
is ``voluntary.'' However, after a number of courts rejected the
Department's position on this point with regard to the credit for
meals, the Wage and Hour Division adopted an enforcement position in
the 1980's providing that an employer can take a meal credit even if an
employee does not voluntarily accept the meal. Thus, under the Wage and
Hour Division's current enforcement policy articulated in the Field
Operations Handbook (Section 30c09(b)), an employer may require an
employee to accept a meal provided by the employer as a condition of
employment, and may take credit for the actual cost of that meal even
if the employee's acceptance is not voluntary.
Since these changes in case law and the Department's enforcement
policy
[[Page 43665]]
have been in place since the 1980's, the Department believes that the
labor market has adjusted to this change. Workers who do not want a
portion of their compensation to take the form of meals will seek other
employment while other workers might seek employers who provide meals.
Since the overall compensation will be the result of market forces and
the market has had decades to adjust to the case law, the proposed
regulatory changes will have no measurable economic effect on the
public.
Section 7(o) Compensatory Time Off
In 1987, the Department issued final regulations implementing a
detailed scheme for the accrual and use of compensatory time off
(section 7(o)). Section 7(o)(5) governs a public employee's use of
accrued compensatory leave. That section states:
An employee of a public agency which is a State, political
subdivision of a State, or an interstate governmental agency--(A)
who has accrued compensatory time off authorized to be provided
under paragraph (1), and (B) who has requested the use of such
compensatory time, shall be permitted by the employee's employer to
use such time within a reasonable period after making the request if
the use of the compensatory time does not unduly disrupt the
operations of the public agency.
29 U.S.C. 207(o)(5). In recent years, a number of courts have
examined the proper interpretation of section 7(o)(5)(B)'s ``reasonable
period'' requirement with regard to whether an employer must allow an
employee to take off the specific days that the employee requests
unless that time off would cause an undue disruption. The appellate
courts that have addressed this issue have uniformly read the statutory
language unambiguously to state that once an employee requests
compensatory time off, the employer has a reasonable period of time to
allow the employee to use the time, unless doing so would be unduly
disruptive. As one court noted, ``mandating a `reasonable period' for
use of comp time is different from mandating the employee's chosen
dates.'' Houston Police Officers Union v. City of Houston, 330 F.3d
298, 303 (5th Cir. 2003).
Proposed Sec. 553.25(c) adds a sentence that states that section
7(o)(5)(B) does not require a public agency to allow the use of
compensatory time on the day specifically requested, but only requires
that the agency permit the use of the time within a reasonable period
after the employee makes the request, unless the use would unduly
disrupt the agency's operations. Additionally, the phrase ``within a
reasonable period after the request'' has been added to the final
sentence of proposed Sec. 553.25(d) and the phrase ``during the time
requested'' has been replaced with ``during the time off'' to clarify
the employer's obligation.
The Department believes that the proposed changes will eliminate
some of the confusion over the use of compensatory time off. Under
current conditions, some public agency employees may accrue
compensatory time off under the mistaken belief that they can specify
an exact date when they will use their accrued compensatory time off.
The proposed clarification makes it clear that public sector employers
may permit employees to use accrued compensatory time off within a
``reasonable period'' after the employee's request is made.
Even though we believe this clarification is consistent with the
court's interpretation of current statutory and regulatory
requirements, and therefore does not change the nature of compensatory
time off rights and responsibilities, the Department recognizes as a
result of this regulatory clarification that some employees may choose
not to accrue compensatory time off. Although the Department typically
considers existing final regulations as part of the baseline for
regulatory impact analysis, and therefore feels incorporating these
court clarifications into the baseline may be consistent with OMB
Circular A-4 guidance, we would like to recognize that this
clarification may have some slight impacts. For example, if the supply
of workers willing to accrue compensatory time off declines, then some
public sector employers may choose to negotiate with their employees to
develop an agreement or understanding that provides more flexibility as
to the use of compensatory time off than the minimum mandated by
section 7(o). In fact, it is probable that some negotiations between
public sector employers and their employees has already occurred as a
result of the court decisions.
Fluctuating Workweek Method of Computing Overtime Under 29 CFR 778.114
The proposed rule would also clarify the Department's regulation at
29 CFR 778.114 addressing the fluctuating workweek method of computing
overtime compensation for salaried employees. The proposed regulation
provides that bona fide bonus or premium payments do not invalidate the
fluctuating workweek method of compensation, but that such payments (as
well as ``overtime premiums'') must be included in the calculation of
the regular rate unless they are excluded by FLSA sections 7(e)(1)-(8).
Paying employees bonus or premium payments for certain activities such
as working undesirable hours is a common and beneficial practice for
both employers and their employees. The Department's proposed
clarification would eliminate any disincentive for employers to pay
additional bona fide bonus or premium payments. The Department has
determined that the proposed regulatory clarification will have no
measurable economic effect on the public except to possibly reduce some
litigation.
Conclusion
The Department concludes that incorporating these statutory
amendments and court interpretations into the FLSA and Portal Act
regulations will not impose any measurable costs on any private or
public sector entity.
Furthermore, because the proposed rule will not impose any
measurable costs on employers, the Department certifies that it would
not have a significant economic impact on a substantial number of small
entities. Accordingly, the Department need not prepare an initial
regulatory flexibility analysis under the Regulatory Flexibility Act (5
U.S.C. 601 et seq.).
VI. Unfunded Mandates Reform Act
This proposed rule has been reviewed in accordance with the
Unfunded Mandates Reform Act of 1995 (UMRA). 2 U.S.C. 1501 et seq. For
the purposes of the UMRA, the Department certifies that this rule does
not impose any Federal mandate that may result in increased
expenditures by State, local, or tribal governments, or increased
expenditures by the private sector, of more than $100 million in any
year.
VII. Executive Order 13132 (Federalism)
The Department has reviewed this rule in accordance with the
Executive Order on Federalism (Executive Order 13132, 64 FR 43255, Aug.
10, 1999). This rule does not have federalism implications as outlined
in E.O. 13132. The rule does not have substantial direct effects on the
states, on the relationship between the national government and the
states, or on the distribution of power and responsibilities among the
various levels of government.
VIII. Executive Order 13175, Indian Tribal Governments
The Department has reviewed this rule under the terms of Executive
Order 13175 and determined it did not have
[[Page 43666]]
``tribal implications.'' The rule does not have ``substantial direct
effects on one or more Indian tribes, on the relationship between the
Federal government and Indian tribes, or on the distribution of power
and responsibilities between the Federal government and Indian
tribes.'' As a result, no tribal summary impact statement has been
prepared.
IX. Effects on Families
The Department certifies that this rule will not adversely affect
the well-being of families, as discussed under section 654 of the
Treasury and General Government Appropriations Act, 1999.
X. Executive Order 13045, Protection of Children
The Department has reviewed this rule under the terms of Executive
Order 13045 and determined this action is not subject to E.O. 13045
because it is not economically significant as defined in E.O. 12866 and
it does not impact the environmental health or safety risks of
children.
XI. Environmental Impact Assessment
The Department has reviewed this rule in accordance with the
requirements of the National Environmental Policy Act of 1969 (NEPA),
42 U.S.C. 4321 et seq., the regulations of the Council of Environmental
Quality, 40 CFR 1500 et seq., and the Departmental NEPA procedures, 29
CFR part 11, and determined that this rule will not have a significant
impact on the quality of the human environment. There is, thus, no
corresponding environmental assessment or an environmental impact
statement.
XII. Executive Order 13211, Energy Supply
The Department has determined that this rule is not subject to
Executive Order 13211. It will not have a significant adverse effect on
the supply, distribution or use of energy.
XIII. Executive Order 12630, Constitutionally Protected Property Rights
The Department has determined that this rule is not subject to
Executive Order 12630 because it does not involve implementation of a
policy ``that has taking implications'' or that could impose
limitations on private property use.
XIV. Executive Order 12988, Civil Justice Reform Analysis
The Department drafted and reviewed this proposed rule in
accordance with Executive Order 12988 and determined that the rule will
not unduly burden the federal court system. The rule was: (1) Reviewed
to eliminate drafting errors and ambiguities; (2) written to minimize
litigation; and (3) written to provide a clear legal standard for
affected conduct and to promote burden reduction.
List of Subjects
29 CFR Part 4
Administrative practice and procedures, Employee benefit plans,
Government contracts, Labor, Law enforcement, Minimum wages, Penalties,
Wages.
29 CFR Part 531
Employment, Labor, Minimum wages, Wages.
29 CFR Part 553
Firefighters, Labor, Law enforcement officers, Overtime pay, Wages.
29 CFR Part 778
Employment, Overtime pay, Wages.
29 CFR Part 779
Compensation, Overtime pay.
29 CFR Part 780
Agriculture, Irrigation, Overtime pay.
29 CFR Part 785
Compensation, Hours of work.
29 CFR Part 786
Compensation, Minimum wages, Overtime pay.
29 CFR Part 790
Compensation, Hours of work.
Victoria A. Lipnic,
Assistant Secretary, Employment Standards Administration.
Alexander J. Passantino,
Acting Administrator, Wage and Hour Division.
For the reasons set forth above, the Department proposes to amend
Title 29, parts 4, 531, 553, 778, 779, 780, 785, 786, and 790 of the
Code of Federal Regulations as follows:
PART 4--LABOR STANDARDS FOR FEDERAL SERVICE CONTRACTS
1. The authority citation for part 4 continues to read as follows:
Authority: 41 U.S.C. 351 et seq.; 41 U.S.C. 38 and 39; 5 U.S.C.
301.
Sec. 4.159 General minimum wage [Revised]
2. Amend Sec. 4.159 by deleting the final sentence.
3. Amend Sec. 4.167 by revising the twelfth sentence to the end,
to read as follows:
Sec. 4.167 Wage payments--medium of payment.
* * * The general rule under that Act provides, when determining
the wage an employer is required to pay a tipped employee, the maximum
allowable hourly tip credit is limited to the difference between $2.13
and the applicable minimum wage specified in section 6(a)(1) of that
Act. (See Sec. 4.163(k) for exceptions in section 4(c) situations.) In
no event shall the sum credited as tips exceed the value of tips
actually received by the employee. The tip credit is not available to
an employer unless the employer has informed the employee of the tip
credit provisions and all tips received by the employee have been
retained by the employee (other than as part of a valid tip pooling
arrangement among employees who customarily and regularly receive tips;
see section 3(m) of the Fair Labor Standards Act).
PART 531--WAGE PAYMENTS UNDER THE FAIR LABOR STANDARDS ACT OF 1938
4. The authority citation for part 531 is revised to read as
follows:
Authority: Sec. 3(m), 52 Stat. 1060; sec. 2, 75 Stat. 65; sec.
101, 80 Stat. 830; sec. 29(B), 88 Stat. 55, Pub. L. 93-259; 29
U.S.C. 203(m) and (t).
Sec. 531.7 [Removed and Reserved]
5. Remove and reserve Sec. 531.7.
6. Amend Sec. 531.30 by revising the second sentence to read as
follows:
Sec. 531.30 ``Furnished'' to the employee.
* * * Not only must the employee receive the benefits of the
facility for which the employee is charged, but, with the exception of
meals, the employee's acceptance of the facility must be voluntary and
uncoerced. * * *
7. Amend Sec. 531.36 by revising paragraph (a) to read as follows:
Sec. 531.36 Nonovertime workweeks.
(a) When no overtime is worked by the employees, section 3(m) and
this part apply only to the applicable minimum wage for all hours
worked. To illustrate, where an employee works 40 hours a week at a
cash wage rate of at least the applicable minimum wage and is paid that
amount free and clear at the end of the workweek, and in addition is
furnished facilities, no consideration need be given to the question of
whether such facilities meet the requirements of section 3(m) and this
part, since the employee has received in cash the applicable minimum
wage for all hours worked. Similarly, where an employee is employed at
a rate in excess of the
[[Page 43667]]
applicable minimum wage and during a particular workweek works 40 hours
for which the employee receives at least the minimum wage free and
clear, the employer having deducted from wages for facilities
furnished, whether such deduction meets the requirement of section 3(m)
and subpart B of this part need not be considered, since the employee
is still receiving, after the deduction has been made, a cash wage of
at least the minimum wage for each hour worked. Deductions for board,
lodging, or other facilities may be made in nonovertime workweeks even
if they reduce the cash wage below the minimum wage, provided the
prices charged do not exceed the ``reasonable cost'' of such
facilities. When such items are furnished the employee at a profit, the
deductions from wages in weeks in which no overtime is worked are
considered to be illegal only to the extent that the profit reduces the
wage (which includes the ``reasonable cost'' of the facilities) below
the required minimum wage. Facilities must be measured by the
requirements of section 3(m) and this part to determine if the employee
has received the applicable minimum wage in cash or in facilities which
may be legitimately included in ``wages'' payable under the Act.
* * * * *
8. Revise Sec. 531.37 to read as follows:
Sec. 531.37 Overtime workweeks.
(a) Section 7 requires that the employee receive compensation for
overtime hours at ``a rate of not less than one and one-half times the
regular rate at which he is employed.'' When overtime is worked by an
employee who receives the whole or part of his or her wage in
facilities and it becomes necessary to determine the portion of wages
represented by facilities, all such facilities must be measured by the
requirements of section 3(m) and subpart B of this part. It is the
Administrator's opinion that deductions may be made, however, on the
same basis in an overtime workweek as in nonovertime workweeks (see
Sec. 531.36), if their purpose and effect are not to evade the
overtime requirements of the Act or other law, providing the amount
deducted does not exceed the amount which could be deducted if the
employee had only worked the maximum number of straight-time hours
during the workweek. Deductions in excess of this amount for such
articles as tools or other articles which are not ``facilities'' within
the meaning of the Act are illegal in overtime workweeks as well as in
nonovertime workweeks. There is no limit on the amount which may be
deducted for ``board, lodging, or other facilities'' in overtime
workweeks (as in workweeks when no overtime is worked), provided that
these deductions are made only for the ``reasonable cost'' of the items
furnished. These principles assume a situation where bona fide
deductions are made for particular items in accordance with the
agreement or understanding of the parties. If the situation is solely
one of refusal or failure to pay the full amount of wages required by
section 7, these principles have no application. Deductions made only
in overtime workweeks, or increases in the prices charged for articles
or services during overtime workweeks will be scrutinized to determine
whether they are manipulations to evade the overtime requirements of
the Act.
(b) Where deductions are made from the stipulated wage of an
employee, the regular rate of pay is arrived at on the basis of the
stipulated wage before any deductions have been made. Where board,
lodging, or other facilities are customarily furnished as addition to a
cash wage, the reasonable cost of the facilities to the employer must
be considered as part of the employee's regular rate of pay. See
Walling v. Alaska Pacific Consolidated Mining Co., 152 F.2d 812 (9th
Cir. 1945), cert. denied, 327 U.S. 803.
9. Remove the undesignated center heading above Sec. 531.50.
10. Designate Sec. Sec. 531.50 through 531.60 as subpart D, and
add a heading for subpart D to read as follows:
Subpart D--Tipped Employees
11. Revise Sec. 531.50 to read as follows:
Sec. 531.50 Statutory provisions with respect to tipped employees.
(a) With respect to tipped employees, section 3(m) provides that,
in determining the wage an employer is required to pay a tipped
employee, the amount paid such employee by the employee's employer
shall be an amount equal to--
(1) The cash wage paid such employee which for purposes of such
determination shall be not less than the cash wage required to be paid
such an employee on August 20, 1996 [i.e., $2.13]; and
(2) An additional amount on account of the tips received by such
employee which amount is equal to the difference between the wage
specified in paragraph (a)(1) of this section and the wage in effect
under section 206(a)(1) of this title.
(b) ``Tipped employee'' is defined in section 3(t) of the Act as
follows: Tipped employee means any employee engaged in an occupation in
which he customarily and regularly receives more than $30 a month in
tips.
12. Amend Sec. Sec. 531.51, 531.56, 531.57, 531.58 to remove and
add terms as follows:
Sec. Sec. 531.51, 531.56, 531.57, 531.58 [Amended]
In 29 CFR part 531, ``Wage Payments Under the Fair Labor Standards
Act of 1938,'' remove the words ``$20'' and add, in their place,
``$30'' wherever they appear in the following places:
a. Section 531.51;
b. Section 531.56 heading and paragraphs (a) through (e);
c. Section 531.57; and
d. Section 531.58.
13. Amend Sec. 531.52 by revising the third, fourth and fifth
sentences, to read as follows:
Sec. 531.52 General characteristics of ``tips.''
* * * Whether a tip is to be given, and its amount, are matters
determined solely by the customer, who has the right to determine who
shall be the recipient of the gratuity. Where an employee is being paid
wages no more than the minimum wage, the employer is prohibited from
using an employee's tips for any reason other than to make up the
difference between the required cash wage paid and the minimum wage or
in furtherance of a valid tip pool. Only tips actually received by an
employee as money belonging to the employee may be counted in
determining whether the person is a ``tipped employee'' within the
meaning of the Act and in applying the provisions of section 3(m) which
govern wage credits for tips.
14. Amend Sec. 531.54 by adding two sentences to the end of the
paragraph to read as follows:
Sec. 531.54 Tip pooling.
* * * Section 3(m) does not impose a maximum contribution
percentage on tip pools. An employer must notify its employees of any
required tip pool contribution amount.
15. Revise Sec. 531.55 to read as follows:
Sec. 531.55 Examples of amounts not received as tips.
(a) A compulsory charge for service, such as 15 percent of the
amount of the bill, imposed on a customer by an employer's
establishment, is not a tip and, even if distributed by the employer to
its employees, cannot be counted as a tip received in applying the
provisions of section 3(m) and 3(t). Similarly, where negotiations
between a hotel and a customer for banquet facilities include amounts
for distribution to employees of the hotel, the amounts so distributed
are not counted as tips received.
[[Page 43668]]
(b) As stated above, service charges and other similar sums which
become part of the employer's gross receipts are not tips for the
purposes of the Act. Where such sums are distributed by the employer to
its employees, however, they may be used in their entirety to satisfy
the monetary requirements of the Act.
16. Amend Sec. 531.56 by revising the last sentence in paragraph
(d) to read as follows:
Sec. 531.56 ``More than $30 per month in tips.''
* * * * *
(d) Significance of minimum monthly tip receipts. * * * It does not
govern or limit the determination of the appropriate amount of wage
credit under section 3(m) that may be taken for tips under section
6(a)(1) (tip credit equals the difference between the minimum wage
required by section 6(a)(1) and $2.13 per hour).
* * * * *
17. Revise Sec. 531.59 to read as follows:
Sec. 531.59 The tip wage credit.
(a) In determining compliance with the wage payment requirements of
the Act, under the provisions of section 3(m) the amount paid to a
tipped employee by an employer is increased on account of tips by an
amount equal to the formula set forth in the statute (minimum wage
required by section 6(a)(1) of the Act minus $2.13), provided that the
employer satisfies all the requirements of section 3(m). This tip
credit is in addition to any credit for board, lodging, or other
facilities which may be allowable under section 3(m).
(b) As indicated in Sec. 531.51, the tip credit may be taken only
for hours worked by the employee in an occupation in which the employee
qualifies as a ``tipped employee.'' Pursuant to section 3(m), an
employer is not eligible to take the tip credit unless it has informed
its employees that it intends to avail itself of the tip wage credit.
Such notice shall be provided in advance of the employer's use of the
tip credit; the notice need not be in writing, but must communicate to
employees that the employer intends to treat tips as satisfying part of
the employer's minimum wage obligation. The credit allowed on account
of tips may be less than that permitted by statute (minimum wage
required by section 6(a)(1) minus $2.13); it cannot be more. In order
for the employer to claim the maximum tip credit, the employer must
demonstrate that the employee received at least that amount in actual
tips. If the employee received less than the maximum tip credit amount
in tips, the employer is required to pay the balance so that the
employee receives at least the minimum wage with the defined
combination of wages and tips. With the exception of tips contributed
to a bona fide tip pool as described in Sec. 531.31, the tip credit
provisions of section 3(m) also require employers to permit employees
to retain all tips received by the employee.
18. Amend Sec. 531.60 by removing the paragraph designation
``(a)'' and revising the first and third sentences to read as follows:
Sec. 531.60 Overtime payments.
When overtime is worked by a tipped employee who is subject to the
overtime pay provisions of the Act, the employee's regular rate of pay
is determined by dividing the employee's total remuneration for
employment (except statutory exclusions) in any workweek by the total
number of hours actually worked by the employee in that workweek for
which such compensation was paid. * * * In accordance with section
3(m), a tipped employee's regular rate of pay includes the amount of
tip credit taken by the employer per hour (not in excess of the minimum
wage required by section 6(a)(1) minus $2.13), the reasonable cost or
fair value of any facilities furnished to the employee by the employer,
as authorized under section 3(m) and this part 531, and the cash wages
including commissions and certain bonuses paid by the employer. * * *
* * * * *
PART 553--APPLICATION OF THE FAIR LABOR STANDARDS ACT TO EMPLOYEES
OF STATE AND LOCAL GOVERNMENTS
19-20. The authority citation for part 553 continues to read as
follows:
Authority: Secs. 1-19 52 Stat. 1060, as amended (29 U.S.C. 201-
219); Pub. L. 99-150, 99 Stat. 787 (29 U.S.C. 203, 207, 211).
21. Amend Sec. 553.25 by adding a sentence at the end of paragraph
(c)(1) and by revising the last sentence of paragraph (d) to read as
follows:
Sec. 553.25 Conditions for use of compensatory time (``reasonable
period'', ``unduly disrupt'').
* * * * *
(c) * * *
(1) * * * Section 7(o)(5) does not require a public agency to allow
an employee to use compensatory time on the specific day requested, but
rather only requires the agency to permit an employee to use the time
within a reasonable period after the employee makes the request, unless
such use would unduly disrupt the agency's operations.
* * * * *
(d) * * * For an agency to turn down a request from an employee for
compensatory time off within a reasonable period after the request
requires that it should reasonably and in good faith anticipate that it
would impose an unreasonable burden on the agency's ability to provide
services of acceptable quality and quantity for the public during the
time off without the use of the employee's services.
22. Revise Sec. 553.210(a) to read as follows:
Sec. 553.210 Fire protection activities.
(a) As used in sections 7(k) and 13(b)(20) of the Act, the term
``any employee * * * in fire protection activities'' refers to ``an
employee, including a firefighter, paramedic, emergency medical
technician, rescue worker, ambulance personnel, or hazardous materials
worker, who is trained in fire suppression, has the legal authority and
responsibility to engage in fire suppression, and is employed by a fire
department of a municipality, county, fire district, or State; and is
engaged in the prevention, control, and extinguishment of fires or
response to emergency situations where life, property, or the
environment is at risk.'' The term includes such incidental
nonfirefighting functions as housekeeping, equipment maintenance,
lecturing, attending community fire drills and inspecting homes and
schools for fire hazards. The term would include all such employees,
regardless of their status as ``trainee,'' ``probationary,'' or
``permanent,'' or of their particular specialty or job title (e.g.,
firefighter, engineer, hose or ladder operator, fire specialist, fire
inspector, lieutenant, captain, inspector, fire marshal, battalion
chief, deputy chief, or chief), and regardless of their assignment to
support activities of the type described in paragraph (c) of this
section, whether or not such assignment is for training or
familiarization purposes, or for reasons of illness, injury or
infirmity.
* * * * *
Sec. Sec. 553.212 and 553.215 [Reserved]
23. Remove and reserve Sec. Sec. 553.212 and 553.215.
Sec. Sec. 553.221, 553.222, 553.223, 553.226, and 553.231 [Amended]
24. Amend Sec. Sec. 553.221, 553.222, 553.223, 553.226 and 553.231
to remove and add terms as follows. Remove the words ``firefighter'' or
``firefighters'' and add, in their place, the words ``employee in fire
protection activities''
[[Page 43669]]
or ``employees in fire protection activities,'' respectively, wherever
they appear in the following places:
a. Section 553.221(a), (d), and (g);
b. Section 553.222(a) and (c);
c. Section 553.223(a), (c), and (d);
d. Section 553.226(c); and
e. Section 553.231(b).
PART 778--OVERTIME COMPENSATION
25. The authority citation for part 778 continues to read as
follows:
Authority: 52 Stat. 1060, as amended; 29 U.S.C. 201 et seq.
26. Revise Sec. 778.110 to read as follows:
Sec. 778.110 Hourly rate employee.
(a) Earnings at hourly rate exclusively. If the employee is
employed solely on the basis of a single hourly rate, the hourly rate
is the ``regular rate.'' For overtime hours of work the employee must
be paid, in addition to the straight time hourly earnings, a sum
determined by multiplying one-half the hourly rate by the number of
hours worked in excess of 40 in the week. Thus a $12 hourly rate will
bring, for an employee who works 46 hours, a total weekly wage of $588
(46 hours at $12 plus 6 at $6). In other words, the employee is
entitled to be paid an amount equal to $12 an hour for 40 hours and $18
an hour for the 6 hours of overtime, or a total of $588.
(b) Hourly rate and bonus. If the employee receives, in addition to
the earnings computed at the $12 hourly rate, a production bonus of $46
for the week, the regular hourly rate of pay is $13 an hour (46 hours
at $12 yields $552; the addition of the $46 bonus makes a total of
$598; this total divided by 46 hours yields a regular rate of $13). The
employee is then entitled to be paid a total wage of $637 for 46 hours
(46 hours at $13 plus 6 hours at $6.50, or 40 hours at $13 plus 6 hours
at $19.50).
27. Revise Sec. 778.111 to read as follows:
Sec. 778.111 Pieceworker.
(a) Piece rates and supplements generally. When an employee is
employed on a piece-rate basis, the regular hourly rate of pay is
computed by adding together total earnings for the workweek from piece
rates and all other sources (such as production bonuses) and any sums
paid for waiting time or other hours worked (except statutory
exclusions). This sum is then divided by the number of hours worked in
the week for which such compensation was paid, to yield the
pieceworker's ``regular rate'' for that week. For overtime work the
pieceworker is entitled to be paid, in addition to the total weekly
earnings at this regular rate for all hours worked, a sum equivalent to
one-half this regular rate of pay multiplied by the number of hours
worked in excess of 40 in the week. (For an alternative method of
complying with the overtime requirements of the Act as far as
pieceworkers are concerned, see Sec. 778.418.) Only additional half-
time pay is required in such cases where the employee has already
received straight-time compensation at piece rates or by supplementary
payments for all hours worked. Thus, for example, if the employee has
worked 50 hours and has earned $491 at piece rates for 46 hours of
productive work and in addition has been compensated at $8.00 an hour
for 4 hours of waiting time, the total compensation, $523.00, must be
divided by the total hours of work, 50, to arrive at the regular hourly
rate of pay--$10.46. For the 10 hours of overtime the employee is
entitled to additional compensation of $52.30 (10 hours at $5.23). For
the week's work the employee is thus entitled to a total of $575.30
(which is equivalent to 40 hours at $10.46 plus 10 overtime hours at
$15.69).
(b) Piece rates with minimum hourly guarantee. In some cases an
employee is hired on a piece-rate basis coupled with a minimum hourly
guaranty. Where the total piece-rate earnings for the workweek fall
short of the amount that would be earned for the total hours of work at
the guaranteed rate, the employee is paid the difference. In such weeks
the employee is in fact paid at an hourly rate and the minimum hourly
guaranty is the regular rate in that week. In the example just given,
if the employee was guaranteed $11 an hour for productive working time,
the employee would be paid $506 (46 hours at $11) for the 46 hours of
productive work (instead of the $491 earned at piece rates). In a week
in which no waiting time was involved, the employee would be owed an
additional $5.50 (half time) for each of the 6 overtime hours worked,
to bring the total compensation up to $539 (46 hours at $11 plus 6
hours at $5.50 or 40 hours at $11 plus 6 hours at $16.50). If the
employee is paid at a different rate for waiting time, the regular rate
is the weighted average of the 2 hourly rates, as discussed in Sec.
778.115.
28. Amend Sec. 778.113 by revising paragraph (a) and the fifth
sentence of paragraph (b) to read as follows:
Sec. 778.113 Salaried employees--general.
(a) Weekly salary. If the employee is employed solely on a weekly
salary basis, the regular hourly rate of pay, on which time and a half
must be paid, is computed by dividing the salary by the number of hours
which the salary is intended to compensate. If an employee is hired at
a salary of $350 and if it is understood that this salary is
compensation for a regular workweek of 35 hours, the employee's regular
rate of pay is $350 divided by 35 hours, or $10 an hour, and when the
employee works overtime the employee is entitled to receive $10 for
each of the first 40 hours and $15 (one and one-half times $10) for
each hour thereafter. If an employee is hired at a salary of $375 for a
40-hour week the regular rate is $9.38 an hour.
(b) * * * The regular rate of an employee who is paid a regular
monthly salary of $1,560, or a regular semimonthly salary of $780 for
40 hours a week, is thus found to be $9 per hour. * * *
29. Revise Sec. 778.114 to read as follows:
Sec. 778.114 Fixed salary for fluctuating hours.
(a) An employee employed on a salary basis may have hours of work
that fluctuate from week to week and be paid the salary amount pursuant
to an understanding with the employer that the employee will receive
such fixed amount as straight time pay for whatever hours the employee
is called upon to work in a workweek, whether few or many. Where there
is a clear mutual understanding of the parties that the fixed salary is
compensation for the total hours worked each workweek, whatever their
number, rather than for working 40 hours or some other fixed weekly
work period, such a salary arrangement is permitted by the Act if the
amount of the salary and any bonus or premium payments not excluded
from the regular rate under section 7(e)(1) through (8) of the Act is
sufficient to provide compensation to the employee at a rate not less
than the applicable minimum wage rate for every hour worked in those
workweeks in which the number of hours the employee works is greatest,
and if the employee receives extra compensation, in addition to such
salary, for all overtime hours worked at a rate not less than one-half
the employee's regular rate of pay. Since the salary in such a
situation is intended to compensate the employee at straight time rates
for whatever hours are worked in the workweek, the regular rate of the
employee will vary from week to week and is determined by dividing the
number of hours worked in the workweek into the amount of the salary
and any non-excludable bonus or
[[Page 43670]]
premium payments to obtain the applicable hourly rate for the week.
Payment for overtime hours at one-half such rate in addition to the
salary, bonus and premium payments satisfies the overtime pay
requirement because such hours have already been compensated at the
straight time regular rate. Payment of overtime premiums and other
bonus and non-overtime premium payments will not invalidate the
``fluctuating workweek'' method of overtime payment, but such payments
must be included in the calculation of the regular rate unless excluded
under section 7(e)(1) through (8) of the Act.
(b)(1) The application of the principles above stated may be
illustrated by the case of an employee whose hours of work do not
customarily follow a regular schedule but vary from week to week, whose
overtime work is never in excess of 50 hours in a workweek, and whose
salary of $600 a week is paid with the understanding that it
constitutes the employee's straight time compensation for whatever
hours are worked in the workweek. If during the course of 4 weeks this
employee works 40, 44, 50, and 48 hours, the regular hourly rate of pay
in each of these weeks is approximately $15.00, $13.64, $12.00, and
$12.50, respectively. Since the employee has already received straight-
time compensation on a salary basis for all hours worked in these
examples, only additional half-time pay is due. For the first week the
employee is entitled to be paid $600; for the second week $627.28 ($600
plus 4 hours at $6.82, or 40 hours at $13.64 plus 4 hours at $20.46);
for the third week $660 ($600 plus 10 hours at $6.00, or 40 hours at
$12.00 plus 10 hours at $18.00); for the fourth week approximately $650
($600 plus 8 hours at $6.25 or 40 hours at $12.50 plus 8 hours at
$18.75).
(2) If, in each week in the examples in paragraph (b)(1) of this
section, 4 of the hours the employee worked were nightshift hours
compensated at a premium rate of an extra $5.00 per hour, the
employee's total compensation would be calculated as follows: For the
first week the employee is entitled to be paid $620 (salary
compensation of $600 plus $20.00 of non-overtime premium pay, with no
overtime hours); for the second week $648.20 (salary compensation of
$600 plus $20.00 of non-overtime premium pay, with a regular rate of
$14.09 and four hours of overtime at $7.05 for a total overtime payment
of $28.20); for the third week $682.00 (salary compensation of $600
plus $20.00 of non-overtime premium pay, with a regular rate of $12.40
and ten hours of overtime at $6.20 for a total overtime payment of
$62.00); for the fourth week $671.68 (salary compensation of $600 plus
$20.00 of non-overtime premium pay, with a regular rate of $12.92 and
eight hours of overtime at $6.46 for a total overtime payment of
$51.68).
(c) The ``fluctuating workweek'' method of overtime payment may not
be used unless the amount of the salary plus any bonus or premium
payments not excluded from the regular rate under section 7(e)(1)
through (8) of the Act is sufficiently large to assure that no workweek
will be worked in which the employee's average hourly earnings fall
below the minimum hourly wage rate applicable under the Act, and unless
the employee clearly understands that the salary amount covers all the
hours worked in the workweek, whether few or many, and the employer
pays the salary amount even though the workweek is one in which a full
schedule of hours is not worked. Typically, such salaries are paid to
employees who do not customarily work a regular schedule of hours and
are in amounts agreed on by the parties as adequate straight-time
compensation for long workweeks as well as short ones, under the
circumstances of the employment as a whole. Where all the legal
prerequisites for use of the ``fluctuating workweek'' method of
overtime payment are present, the Act, in requiring that ``not less
than'' the prescribed premium of 50 percent for overtime hours worked
be paid, does not prohibit paying more. On the other hand, where all
the facts indicate that an employee is being paid for overtime hours at
a rate no greater than that which the employee receives for non-
overtime hours, compliance with the Act cannot be rested on any
application of the fluctuating workweek overtime formula.
30. Amend Sec. 778.200 by adding paragraph (a) (8) and revising
paragraph (b) to read as follows:
Sec. 778.200 Provisions governing inclusion, exclusion, and crediting
of particular payments.
(a) * * *
(8) Any value or income derived from employer-provided grants or
rights provided pursuant to a stock option, stock appreciation right,
or bona fide employee stock purchase program which is not otherwise
excludable under any of paragraphs (1) through (7) if--
(i) Grants are made pursuant to a program, the terms and conditions
of which are communicated to participating employees either at the
beginning of the employee's participation in the program or at the time
of the grant;
(ii) In the case of stock options and stock appreciation rights,
the grant or right cannot be exercisable for a period of at least 6
months after the time of grant (except that grants or rights may become
exercisable because of an employee's death, disability, retirement, or
a change in corporate ownership, or other circumstances permitted by
regulation), and the exercise price is at least 85 percent of the fair
market value of the stock at the time of grant;
(iii) Exercise of any grant or right is voluntary; and
(iv) Any determinations regarding the award of, and the amount of,
employer-provided grants or rights that are based on performance are--
(A) Made based upon meeting previously established performance
criteria (which may include hours of work, efficiency, or productivity)
of any business unit consisting of at least 10 employees or of a
facility, except that any determinations may be based on length of
service or minimum schedule of hours or days of work; or
(B) Made based upon the past performance (which may include any
criteria) of one or more employees in a given period so long as the
determination is in the sole discretion of the employer and not
pursuant to any prior contract.
(b) Section 7(h). This subsection of the Act provides as follows:
(1) Except as provided in paragraph (2), sums excluded from the
regular rate pursuant to subsection (e) shall not be creditable toward
wages required under section 6 or overtime compensation required under
this section.
(2) Extra compensation paid as described in paragraphs (5), (6),
and (7) of subsection (e) of this section shall be creditable toward
overtime compensation payable pursuant to this section.
* * * * *
31. Amend Sec. 778.208 by revising the first sentence to read as
follows:
Sec. 778.208 Inclusion and exclusion of bonuses in computing the
``regular rate.''
Section 7(e) of the Act requires the inclusion in the regular rate
of all remuneration for employment except eight specified types of
payments. * * *
PART 779--THE FAIR LABOR STANDARDS ACT AS APPLIED TO RETAILERS OF
GOODS OR SERVICES
32-33. The authority citation for part 779 is revised to read as
follows:
Authority: Secs. 1-19, 52 Stat. 1060, as amended; 75 Stat. 65;
Sec. 29(B), Pub. L. 93-259, 88 Stat. 55; 29 U.S.C. 201-219.
[[Page 43671]]
34. Revise the undesignated center heading for Sec. Sec. 779.371
and 779.372 to read as follows:
Automobile, Truck and Farm Implement Sales and Services, and Trailer,
Boat and Aircraft Sales
35. Amend Sec. 779.371 by revising the fifth sentence of paragraph
(a) to read as follows:
Sec. 779.371 Some automobile, truck, and farm implement
establishments may qualify for exemption under section 13(a)(2).
(a) * * * Section 13(b)(10) is applicable not only to automobile,
truck, and farm implement dealers but also to dealers in trailers,
boats, and aircraft. * * *
* * * * *
36. Amend Sec. 779.372 by revising paragraphs (a), (b)(1)(ii),
(b)(2), and (c) to read as follows:
Sec. 779.372 Nonmanufacturing establishments with certain exempt
employees under section 13(b)(10).
(a) General. A specific exemption from only the overtime pay
provisions of section 7 of the Act is provided in section 13(b)(10) for
certain employees of nonmanufacturing establishments engaged in the
business of selling automobiles, trucks, farm implements, trailers,
boats, or aircraft. Section 13(b)(10)(A) states that the provisions of
section 7 shall not apply with respect to ``any salesman, partsman, or
mechanic primarily engaged in selling or servicing automobiles, trucks,
or farm implements, if he is employed by a nonmanufacturing
establishment primarily engaged in the business of selling such
vehicles or implements to ultimate purchasers.'' Section 13(b)(10)(B)
states that the provisions of section 7 shall not apply with respect to
``any salesman primarily engaged in selling trailers, boats, or
aircraft, if he is employed by a nonmanufacturing establishment
primarily engaged in the business of selling trailers, boats, or
aircraft to ultimate purchasers.'' This exemption will apply
irrespective of the annual dollar volume of sales of the establishment
or of the enterprise of which it is a part.
(b) * * *
(1) * * *
(ii) The establishment must be primarily engaged in the business of
selling automobiles, trucks, or farm implements to the ultimate
purchaser for section 13(b)(10)(A) to apply. If these tests are met by
an establishment the exemption will be available for salesmen, partsmen
and mechanics, employed by the establishment, who are primarily engaged
during the work week in the selling or servicing of the named items.
Likewise, the establishment must be primarily engaged in the business
of selling trailers, boats, or aircraft to the ultimate purchaser for
the section 13(b)(10)(B) exemption to be available for salesmen
employed by the establishment who are primarily engaged during the work
week in selling these named items. An explanation of the term
``employed by'' is contained in Sec. Sec. 779.307 through 779.311. The
exemption is intended to apply to employment by such an establishment
of the specified categories of employees even if they work in
physically separate buildings or areas, or even if, though working in
the principal building of the dealership, their work relates to the
work of physically separate buildings or areas, so long as they are
employed in a department which is functionally operated as part of the
dealership.
(2) This exemption, unlike the former exemption in section
13(a)(19) of the Act prior to the 1966 amendments, is not limited to
dealerships that qualify as retail or service establishments nor is it
limited to establishments selling automobiles, trucks, and farm
implements, but also includes dealers in trailers, boats, and aircraft.
(c) Salesman, partsman, or mechanic.
(1) As used in section 13(b)(10)(A), a salesman is an employee who
is employed for the purpose of and is primarily engaged in making sales
or obtaining orders or contracts for sale or servicing of the
automobiles, trucks, or farm implements that the establishment is
primarily engaged in selling. As used in section 13(b)(10)(B), a
salesman is an employee who is employed for the purpose of and is
primarily engaged in making sales or obtaining orders or contracts for
sale of trailers, boats, or aircraft that the establishment is
primarily engaged in selling. Work performed incidental to and in
conjunction with the employee's own sales or solicitations, including
incidental deliveries and collections, is regarded as within the
exemption.
(2) As used in section 13(b)(10)(A), a partsman is any employee
employed for the purpose of and primarily engaged in requisitioning,
stocking, and dispensing parts.
(3) As used in section 13(b)(10)(A), a mechanic is any employee
primarily engaged in doing mechanical work (such as get ready
mechanics, automotive, truck, or farm implement mechanics, used car
reconditioning mechanics, and wrecker mechanics) in the servicing of an
automobile, truck or farm implement for its use and operation as such.
This includes mechanical work required for safe operation, as an
automobile, truck, or farm implement. The term does not include
employees primarily performing such nonmechanical work as washing,
cleaning, painting, polishing, tire changing, installing seat covers,
dispatching, lubricating, or other nonmechanical work. Wrecker mechanic
means a service department mechanic who goes out on a tow or wrecking
truck to perform mechanical servicing or repairing of a customer's
vehicle away from the shop, or to bring the vehicle back to the shop
for repair service. A tow or wrecker truck driver or helper who
primarily performs nonmechanical repair work is not exempt.
(4) Employees variously described as service manager, service
writer, service advisor, or service salesman, who are primarily engaged
in obtaining orders for servicing of automobiles, trucks, or farm
implements that the establishment is primarily engaged in selling, are
exempt under section 13(b)(10)(A). Such employees typically perform
duties such as greeting customers and obtaining information regarding
their service or repair concerns; diagnosing the mechanical condition
of the automobile, truck, or farm implement brought in for repair;
offering and attempting to sell appropriate diagnostic or repair
services; providing estimates for the recommended services or repairs;
writing up orders for work authorized by the customer; assigning the
work to various employees; directing and checking on the work of
mechanics; and communicating with customers regarding the status of
their vehicles.
* * * * *
PART 780--EXEMPTIONS APPLICABLE TO AGRICULTURE, PROCESSING OF
AGRICULTURAL COMMODITIES, AND RELATED SUBJECTS UNDER THE FAIR LABOR
STANDARDS ACT
37-38. The authority citation for part 780 continues to read as
follows:
Authority: Secs. 1-19, 52 Stat. 1060, as amended; 75 Stat. 65;
29 U.S.C. 201-219.
39. Revise Sec. 780.400 to read as follows:
Sec. 780.400 Statutory provisions.
Section 13(b)(12) of the Fair Labor Standards Act exempts from the
overtime provisions of section 7 any employee employed in agriculture
or in connection with the operation or maintenance of ditches, canals,
reservoirs, or waterways, not owned or operated for profit, or operated
on a sharecrop basis, and which are used
[[Page 43672]]
exclusively for supply and storing of water, at least 90 percent of
which was ultimately delivered for agricultural purposes during the
preceding calendar year.
40. Amend Sec. 780.401 by revising the first sentence of paragraph
(a) and all of paragraph (b) to read as follows:
Sec. 780.401 General explanatory statement.
(a) Section 13(b)(12) of the Act contains the same wording
exempting any employee employed in agriculture as did section 13(a)(6)
prior to the 1966 amendments. * * *
(b) In addition to exempting employees engaged in agriculture,
section 13(b)(12) also exempts from the overtime provisions of the Act
employees employed in specified irrigation activities. The effect of
the 1997 amendment to section 13(b)(12) is to expand the overtime
exemption for any employee employed in specified irrigation activities
used for supply and storing of water for agricultural purposes by
substituting ``water, at least 90 percent of which was ultimately
delivered for agricultural purposes during the preceding calendar
year'' for the prior requirement that all the water be used for
agricultural purposes. Prior to the 1966 amendments employees employed
in specified irrigation activities were exempt from the minimum wage
and overtime pay requirements of the Act.
* * * * *
41. Revise Sec. 780.406 to read as follows:
Sec. 780.406 Exemption is from overtime only.
This exemption applies only to the overtime provisions of the Act
and does not affect the minimum wage, child labor, recordkeeping, and
other requirements of the Act.
42. Amend Sec. 780.408 by revising the section heading and the
first four sentences of the paragraph to read as follows:
Sec. 780.408 Facilities of system at least 90 percent of which was
used for agricultural purposes.
Section 13(b)(12) requires for exemption of irrigation work that
the ditches, canals, reservoirs, or waterways in connection with which
the employee's work is done be ``used exclusively for supply and
storing of water at least 90 percent of which was ultimately delivered
for agricultural purposes during the preceding calendar year.'' If a
water supplier supplies water of which more than 10 percent is used for
purposes other than ``agricultural purposes'' during the preceding
calendar year, the exemption would not apply. For example, the
exemption would not apply where more than 10 percent of the water
supplier's water is delivered to a municipality to be used for general,
domestic, and commercial purposes. The fact that a small amount of the
water furnished for use in farming operations is in fact used for
incidental purposes by the farmer on the farm does not, however,
require the conclusion that such water was not ultimately delivered for
agricultural purposes within the meaning of the irrigation exemption in
section 13(b)(12). * * *
PART 785--HOURS WORKED
43. The authority citation for part 785 is revised to read as
follows:
Authority: 52 Stat. 1060; 29 U.S.C. 201-219; 29 U.S.C. 254.
44. Amend Sec. 785.9 by adding a sentence after the third sentence
in paragraph (a) to read as follows:
Sec. 785.9 Statutory exemptions.
(a) * * * The use of an employer's vehicle for travel by an
employee and activities that are incidental to the use of such vehicle
for commuting are not considered ``principal'' activities when meeting
the following conditions: The use of the employer's vehicle for travel
is within the normal commuting area for the employer's business or
establishment and the use of the employer's vehicle is subject to an
agreement on the part of the employer and the employee or the
representative of such employee. * * *
45. Amend Sec. 785.34 by adding a sentence after the first
sentence to read as follows:
Sec. 785.34 Effect of section 4 of the Portal-to-Portal Act.
* * * Section 4(a) further provides that the use of an employer's
vehicle for travel by an employee and activities that are incidental to
the use of such vehicle for commuting are not considered principal
activities when the use of such vehicle is within the normal commuting
area for the employer's business or establishment and is subject to an
agreement on the part of the employer and the employee or the
representative of such employee. * * *
46. Amend Sec. 785.50 by adding a sentence at the end of paragraph
(a)(2) to read as follows:
Sec. 785.50 Section 4 of the Portal-to-Portal Act.
* * * * *
(a) * * *
(2) * * * For purposes of this subsection, the use of an employer's
vehicle for travel by an employee and activities performed by an
employee which are incidental to the use of such vehicle for commuting
shall not be considered part of the employee's principal activities if
the use of such vehicle for travel is within the normal commuting area
for the employer's business or establishment and the use of the
employer's vehicle is subject to an agreement on the part of the
employer and the employee or representative of such employee.
* * * * *
PART 786--MISCELLANEOUS EXEMPTIONS AND EXCLUSIONS FROM COVERAGE
47. The authority citation for part 786 continues to read as
follows:
Authority: 52 Stat. 1060, as amended; 29 U.S.C. 201-219.
48. Revise the heading of part 786 to read as set forth above.
49. Add subpart G consisting of Sec. 786.300 to read as follows:
Subpart G--Youth Opportunity Wage
Sec. 786.300 Application of the youth opportunity wage.
Section 6(g) of the Fair Labor Standards Act allows any employer to
pay any employee who has not attained the age of 20 years a wage of not
less than $4.25 an hour during the first 90 consecutive calendar days
after such employee is initially employed by such employer. For the
purposes of hiring workers at this wage, no employer may take any
action to displace employees, including partial displacements such as
reducing hours, wages, or employment benefits. Any employer that
violates these provisions is considered to have violated section
15(a)(3) of the Act.
50. Add subpart H consisting of Sec. 786.350 to read as follows:
Subpart H--Volunteers at Private Non-Profit Food Banks
Sec. 786.350 Exclusion from definition of ``employee'' of volunteers
at private non-profit food banks.
Section 3(e)(5) of the Fair Labor Standards Act excludes from the
definition of the term ``employee'' individuals who volunteer their
services solely for humanitarian purposes at private non-profit food
banks and who receive groceries from the food banks.
[[Page 43673]]
PART 790--GENERAL STATEMENT AS TO THE EFFECT OF THE PORTAL-TO-
PORTAL ACT OF 1947 ON THE FAIR LABOR STANDARDS ACT OF 1938
51. The authority citation for part 790 is revised to read as
follows:
Authority: 52 Stat. 1060, as amended; 100 Stat. 1755; 29 U.S.C.
201-219; 29 U.S.C. 254.
52. Amend Sec. 790.3 by adding a sentence at the end of paragraph
(a)(2) to read as follows:
Sec. 790.3 Provisions of the statute.
* * * * *
(a) * * *
(2) * * * For purposes of this subsection, the use of an employer's
vehicle for travel by an employee and activities performed by an
employee which are incidental to the use of such vehicle for commuting
shall not be considered part of the employee's principal activities if
the use of such vehicle for travel is within the normal commuting area
for the employer's business or establishment and the use of the
employer's vehicle is subject to an agreement on the part of the
employer and the employee or representative of such employee.
* * * * *
[FR Doc. E8-16631 Filed 7-25-08; 8:45 am]
BILLING CODE 4510-27-P