Authored by Alexander J. Passantino

Earlier this week, the Office of Management and Budget’s Office of Information and Regulatory Affairs completed its review of the Wage and Hour Division’s Final Rule titled “Amendments to the Fair Labor Standards Act.” Assuming there were no significant issues with the draft regulation, this means we should see publication of the Final Rule in the Federal Register in the very near future.

The proposed rule was published in July 2008, and the Wage and Hour Division received public comments for 60 days. The proposal was primarily designed to update the FLSA regulations to reflect numerous statutory changes that had been enacted since the regulations had last been amended. For example, a number of the current regulatory (and interpretive bulletin) provisions contain references to wage rates that long ago ceased to comply with the FLSA’s minimum wage (currently $7.25 per hour). In addition, various exemptions of relatively narrow scope have been added and amended by statute over the years. The proposed rule was drafted to update the regulations to address these issues.

More significantly, the proposed rule was drafted to clarify that a tipped employee need not be provided with written notice of an employer’s intent to use the tip credit provisions, nor an explanation of how the tip credit operates. The proposal would simply have required that the employee be ‘informed” of the tip credit provisions. With respect to actual use of the tip credit, the proposal eliminated provisions that contained references to employment agreements that required tips to be turned over to the employer and clarified that an employer may (1) take the tip credit and allow employees to keep all tips earned or (2) not take the tip credit and retain tips so long as the deductions did not take the employee below minimum wage. The proposed rule also clarified that section 3(m) of the FLSA does not impose a maximum tip pool contribution percentage. Instead, the proposed rule stated that the employer must inform each employee of the required tip pool contribution, and that an employee’s participation in a tip pool cannot bring the employee’s wages below the minimum wage.

Finally, the proposed rule was drafted to clarify the Wage and Hour Division’s understanding of the fluctuating workweek method of payment, eliminating regulatory language that discourages employers from paying bonuses or premium payments in addition to salary (e.g., nightshift differentials or hazard pay).

Because of the fairly unique procedural posture of this regulation — proposed during the Bush Administration, but finalized during the Obama Administration — it is not clear what position the new Administration will adopt in the Final Rule. Although the proposal in 2008 reflected the thinking of the DOL at that time, the current DOL almost certainly views these issues differently and that could be reflected in the Final Rule. As a result, we are keeping a close eye on the publication of the Final Rule and will update the blog as more information becomes available.