November has been a busy month in the wage and hour arena. St. Paul has enacted a $15 minimum wage ordinance; the Eighth Circuit Court of Appeals has decided that per diem travel payments under an IRS accountable plan may be considered wages toward the regular rate (even though untaxed); and the U.S. Department of Labor (“DOL”) has issued, and re-issued several opinion letters.
1. St. Paul Enacts $15 Minimum Wage Ordinance. On November 14, 2018, the St. Paul City Council passed an ordinance implementing a minimum wage of $15 for employees who work within the geographic boundaries of St. Paul. Employees based outside of St. Paul, but who occasionally perform work in St. Paul are also covered if, “over the course of one week [the employee] performs at least two hours of work for an employer within the geographic boundaries of the city.” This means that the Ordinance appears to apply to employers both located within St. Paul and those outside of St. Paul with employees who work two or more hours in a week in St. Paul.
Employers are defined in the Ordinance as “Macro” (more than 10,000 employees); “Large” (more than 100); “Small” (100 or less); and “Micro” (fewer than 5). The minimum wage hike begins January 1, 2020 for Macro businesses at $12.50 and ends up at $15 by July 1, 2022, with automatic increases thereafter. All other size employers begin the first increase on July 1, 2020. Large businesses start at $11.50 and end up at $15 by July 1, 2023. Small businesses start at $10 and end up at $15 by July 1, 2026. Micro businesses start at $9.25 and end up at $15 by July 1, 2028. Once an employer has hit the $15 minimum wage, thereafter the minimum wage is automatically increased to whatever the City Minimum Wage rate is that applies to the City of Saint Paul (the adjusted minimum wage rates will be announced September 1 of each year). For purposes of determining company size, all employees, including temporaries, are included. Franchises with more than 10 locations nationally are based on all locations owned and operated by a single franchisee. A few other items to note – there is no exemption for tipped employees. Thus, like with our State minimum wage, employers cannot apply a tip credit to meet the minimum wage requirements. There are exceptions for youth wages, city-approved youth-focused training or apprentice program, persons with disabilities, extended employment program workers, independent contractors, and others.
2. Non-Taxable Mileage Payments to Long Haul Drivers Considered “Wages” Under the FLSA. On November 14, 2018, the Eighth Circuit Court of Appeals held in Baouch v. Werner Enterprises, Inc. that per diem travel payments made to truck drivers driving away from home at night as reimbursement for travel expenses are “wages,” even though not taxed as part of an “accountable plan” under Treas. Reg. §1.62-2(c)(2). To qualify as an “accountable plan” a payment plan has to meet the IRS’ business connection, substantiation and return of excess expenses requirements. The Court held that the payments were part of the drivers’ “regular rate,” as they were made as remuneration for work performed under the FLSA. The Court held that representations made by the employer to the IRS were not inconsistent with the FLSA’s governing the calculation of regular rates for the purposes of minimum wages. As the payments were made based on miles driven, and thus, hours worked, the payments were correctly included in the regular rate calculation, even though the primary effect of the payments were to cause participating drivers to take home more pay due to the non-payment of taxes on the payments.
The Court concluded that “per diem payments that vary with the amount of work performed are part of the regular rate.” It should not be ignored, however, that an employer can’t have it both ways – more often an employer argues that per diem is not part of the regular rate (as that increases overtime). Accordingly, employers should be careful that if per diem payments under an accountable plan are tied to hours worked, they may indeed be included in the regular rate for purposes of overtime. Finally, the Court noted such an analysis should be reviewed on a case-by-case basis, and look at factors such as whether the payments were unrestricted (employees need not report expenses or provide receipts and could spend the money as they liked) and the purpose and intent of the payments.
3. DOL Issues Opinion Letter Regarding “Guaranteed Salary” & “Usual Earnings". On November 8, 2018, the DOL issued Opinion Letter FLSA2018-24, addressing the question of when additional payments to an exempt employee based on an hourly, daily or shift basis defeats the professional exemption. In short, an exempt employee may have a “guaranteed salary”, but then also receive additional compensation on an hourly, daily, or shift basis, so long as there is a “reasonable relationship” between the guaranteed amount and actual wages earned. Usual earnings between 1 to 1.5 times the guaranteed salary will typically satisfy this test. (i.e. the employee is guaranteed $500 a week and typically earns $600 to $750 a week). Earnings more than that (i.e. 1.8 times or double) may not have a “reasonable relationship” and thus may defeat the exemption. Yet, no bright-line rule exists, and the DOL will look at it on an employee-specific basis (not as a group). Keep in mind that this test does not apply to other payments made to an exempt employee such as bonuses, commissions, etc., which do not have the “reasonable relationship” requirement.
4. DOL Re-Issues Opinion Letter Regarding Tip Credit for Tipped Employees. Also on November 8, 2018, the DOL issued Opinion Letter FLSA2018-27, which reproduces verbatim the text of Opinion Letter FLSA2009-23, which was withdrawn by the Obama Administration “for further consideration”. This Opinion Letter clarifies the definition of a “tipped employee” for purposes of the Fair Labor Standards Act tip credit. However, since Minnesota does not allow a “tip credit” against minimum wage, I won’t go into more detail here, other than to give our national employers a heads-up that it’s out there.
5. Minnesota Minimum Wage Increases on January 1, 2019. Minnesota’s minimum wage increases on January 1, 2019 to $9.86/hr. for large employers (more than 100 employees) and $8.04 for all others (small employers, training wage and youth wage rate).
If you have questions regarding this article or any other labor and employment law matters, please contact Corie Anderson (firstname.lastname@example.org or 952-921-4615) or any other attorney at Seaton, Peters & Revnew, P.A.