New York State Department of Labor Adopts Wage Deduction Regulations

By William J. Milani, Dean L. Silverberg, Jeffrey M. Landes, Susan Gross Sholinsky, Anna A. Cohen, and Jennifer A. Goldman

The New York State Department of Labor (“DOL”) has adopted wage deduction regulations (“Final Regulations”) pertaining to the expanded categories of permissible wage deductions in the New York Labor Law, effective October 9, 2013. 

As we previously reported (see the Act Now Advisory entitled “New York State Releases Proposed Wage Deduction Regulations”), among other things, the Final Regulations (i) set forth information concerning the subset of permissible wage deductions referred to as “similar payments for the benefit of the employee,” (ii) provide information regarding prohibited deductions and requirements relating to an employee's authorization, and (iii) specify procedures and notice requirements concerning the recovery of overpayments and wage advances to employees.

The Final Regulations are codified at 12 New York Code of Rules and Regulations Part 195.

The Final Regulations are substantially similar to the proposed regulations issued during the summer.  Of note, the Final Regulations clarify the following:

  • A single written authorization containing more than one deduction is permissible as long as all the required information is provided.
  • For the purpose of calculating time frames, any reference to “days” means calendar days, not business days. Any reference to a “week” means seven consecutive days.
  • Dispute resolution provisions contained in collective bargaining agreements existing at the time the Final Regulations are issued will be deemed compliant so long as they provide at least as much protection to the employee as the Final Regulations.  In this regard, the employee must be permitted to provide written notice of his or her objections to the deduction, the employer must provide a written reply containing its position with regard to the deduction and a reason why the employer agrees or disagrees, and the employer must cease deductions until the reply has been provided and any appropriate adjustments have been made.
  • Dispute resolution provisions in collective bargaining agreements executed after the issuance of the Final Regulations must provide at least as much protection to the employee, as described above, AND must specifically reference the applicable dispute resolution section of the Final Regulations.

During the Public Comment period, which ended on July 6, 2013, commenters requested, among other things, that the regulations permit employers to charge employees for the reasonable replacement value of items provided by the employer that had been lost, stolen, or destroyed while in the employee’s possession. The DOL responded that “[n]either the statute nor the regulations allow this to take place through deductions.”  Accordingly, it is important that employers do not make any deductions from wages for lost, stolen, or destroyed property.

In response to commenters, the DOL also clarified that the Final Regulations expressly repeal the “10 percent rule,” which capped deductions relating to “similar payments for the benefit of the employee” at 10 percent of the employee's gross pay for the particular pay period.  Employers should keep in mind, however, that certain deductions may not reduce an employee’s hourly wage below the statutory minimum wage. 

What Employers Should Do Now

  • Review employee handbooks and other policies and procedures to reflect the rules set forth in the Final Regulations (including updating lists of permissible deductions).
  • Ensure that payroll systems (including any third-party vendors used for this purpose) have the capability to make any newly implemented deductions.
  • Inform payroll, human resources, and any other applicable departments responsible for implementing wage deductions of the specific deadlines and dispute procedures set forth in the Final Regulations.
  • Update wage deduction authorization forms so that such forms comply with the rules set forth in the Final Regulations.
  • Ensure all new loan or repayment arrangements comply with the new rules.
  • Implement procedures that allow employees to contest deductions for overpayments and wage advances in compliance with the procedures set forth in the Final Regulations.
  • Prepare notices in connection with deductions relating to overpayments.

Wage & Hour FAQ #1: How to Prepare for a Wage Hour Inspection

By: Kara M. Maciel

Earlier this month, we released our Wage and Hour Division Investigation Checklist for employers and have received a lot of great feedback with additional questions. Following up on that feedback, we will be regularly posting FAQs as a regular feature of our Wage & Hour Defense Blog.

In this post, we address a common issue that many employers are facing in light of increased government enforcement at the state and federal level from the Department of Labor.

QUESTION: “I am aware that my industry is being targeted by the DOL for audits and several of my competitors in the area are facing wage and hour investigations.  What should I be doing now to proactively prepare my company in the event we are next for an audit?”

ANSWER:  Even though your company may not be in the midst of an investigation, there are still several action items that you can implement to place your company is the best possible position to defend against any DOL investigation.  For example:

  • Check current 1099’s as well as all 1099’s going back several years and review the actual job duties of those persons paid as independent contractors to verify that they were not, in fact, employees.
  •  Examine all written job descriptions to ensure that they: (i) accurately reflect the work done, (ii) have been updated where necessary, and (iii) indeed justify the applicable exemptions.
  • Review time keeping systems to ensure that non-exempt employees are being paid for all work performed, including work pre- or post-shift and during meal breaks
  • Ensure that required payroll records and written policies and procedures are current, accurate, and compliant.

Training staff is another key component of protecting your company from costly wage and hour claims. Not only could all managers be familiar with the FLSA and state wage and hour laws, but all employees should understand their role in proper record keeping and overtime. Key managers and personnel should be aware of the DOL’s inspection rights and what the DOL can and cannot do while on your property.

Finally, developing a response team with legal counsel is critical to being prepared if an inspection official knocks on your door unannounced. The response team should be armed with information and protocols so they know how to address the DOL’s subpoenas, questions, document requests, and other investigative demands.

In subsequent FAQs, we will discuss in more detail who should participate in a response team and what information they need to have in the event of an unscheduled DOL audit. But, in the meantime, regular internal reviews and audits of your wage and hour practices and documentation is key to protecting against costly exposure from a government investigation.

* * * * * * * * * *

Be sure to check out our Wage and Hour Division Investigation Checklist for more helpful tips and advice about preparing for and managing a Wage Hour Inspection.

 

Payday for Unpaid Interns?

By Amy Traub and Desiree Busching

Like the fashions in the magazines on which they work and the blockbuster movies for which they assist in production, unpaid interns are becoming one of the newest, hottest trends— the new “it” in class action litigation. As we previously advised, there has been an increased focus on unpaid interns in the legal arena, as evidenced by complaints filed by former unpaid interns in September 2011 against Fox Searchlight Pictures, Inc. and in February 2012 against Hearst Corporation. In those lawsuits, unpaid interns working on the hit movie “Black Swan” and at Harper’s Bazaar magazine, respectively, alleged that their high-profile employers violated federal and state wage-and-hour laws by failing to pay them for work they claim was more aptly suited for paid employees.

The newest case to hit the scene on this issue has been filed by Lucy Bickerton, a former unpaid intern of “The Charlie Rose Show” on PBS. In her March 14, 2012 complaint, Bickerton alleges that she worked for the show in 2007 for approximately 25 hours per week and that the show and its host had her performing “productive work”—work for which she claims she, and other interns like her, should have been paid.

According to a press release issued by the plaintiffs’ firm that has filed all three of these prominent unpaid intern cases, “[s]ince filing a lawsuit on behalf of unpaid Fox [Searchlight Pictures, Inc.] interns late last year, our office has received numerous calls from other current and former interns who were not paid for the productive work they performed. This [Bickerton] lawsuit should send a clear message to employers that the practice of classifying employees as ‘interns’ to avoid paying wages runs afoul of federal and state wage and hour laws.”

The clear message received is that this firm is on the offensive, and others will undoubtedly soon follow suit. For employers who have checked their unpaid internship programs to ensure that they are in compliance with the tests utilized by both federal and state agencies and courts in analyzing whether individuals qualify as “interns,” it is time to double-check. With the attention this issue is seeing in the media and before the courts, it is clear that if misclassified unpaid interns are not paid now, employers may just be paying later.

New York State Department of Labor Issues Opinion Letter on Internships

EBG colleague Susan Gross Sholinsky recently prepared an Act Now Advisory discussing New York State’s December 21, 2010 opinion letter regarding whether an internship will qualify for an exception to applicable minimum wage rules. The New York State Department of Labor utilizes the United States Department of Labor’s six-step test, but adds an additional five factors to determine whether the internship will be exempt from minimum wage rules. In order to qualify for the exemption, the following eleven factors must be satisfied:

1. The training, even though it includes actual operation of the facilities of the employer, is similar to training that would be given in an educational environment.

2. The training is for the benefit of the intern.

3. The interns do not displace regular employees and any work they may do is under close supervision.

4. The employer who provides the training derives no immediate advantage from the activities of the trainees or students and, on occasion, operations may actually be impeded.

5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period and are free to take employment elsewhere in the same field.

6. The trainees or students have been notified, in writing, that they will not receive any wages for such training and are not considered employees for minimum wage purposes.

7. Any clinical training is performed under the supervision and direction of individuals knowledgeable and experienced in the activities being performed.

8. The trainees or students do not receive employee benefits.

9. The training is general, so as to qualify the trainees or students to work in any similar business, rather than designed specifically for a job with the employer offering the program.

10. The screening process for the internship is not the same as for employment, and does not appear to be for that purpose, but involves only criteria relevant for admission to an independent educational program.

11. Advertisements for the program are couched clearly in terms of education or training, rather than employment, although employers may indicate that qualified graduates may be considered for employment.

For additional information and analysis, please click on the link to the Act Now Advisory.

Abrupt Changes for New York's Restaurants and Hotels: Minimum Wage, Tip Pooling, and Recordkeeping Requirements

By: Kara Maciel

Following up on our previous blog posting from November 2, 2010, on December 16, 2010, the New York State Department of Labor issued a new minimum wage order (the “Order”) which will bring immediate changes to the restaurant and hotel industries. Under the Order, employees will be due a higher minimum wage and subject to new tip pooling rules. Meanwhile, employers will need to comply with more stringent recordkeeping requirements. Although employers have until February 28, 2011, to adjust their payrolls, they will still owe their employees back pay as of January 1, 2011. Important highlights include: 

Higher Minimum Wage for Tipped Employees: 

·        Food service workers must earn at least $5.00 per hour and no more than $2.25 per hour in tip credits; however, the total of tips they receive plus their hourly wages must still amount to the federal and state minimum wage of $7.25 per hour

·        Service employees (at non-resort hotels) must earn at least $5.65 per hour and no more than $1.60 per hour in tip credits; however, the total of tips they receive plus their hourly wages must amount to the federal and state minimum wage of $7.25 per hour

·        Service employees (at resort hotels) must earn at least $4.90 per hour and no more than $2.35 per hour in tip credits; however their weekly average for tips must amount to at least $4.10 per hour  

Mandatory Tip Pooling is Permitted  

·        Employers may require food service employees to pool tips with co-workers

·        Employers may establish the percentage of pooled tips to be distributed to each occupation

·        However, only “food service workers” may receive distributions from the tip pool, e.g., wait staff; counter personnel who serve food or beverages to customers; bus persons; bartenders, including service bartenders; barbacks; food runners; captains who serve food directly to customers; and hosts who greet and seat guests 

No More Set-Off of Wages Paid in Excess of Minimum Wage: 

·        Employers must pay an additional hour at the rate of minimum wage for each hour the employee works beyond 10 hours per day, regardless of whether the rate of pay for the first 10 hours is above the minimum wage 

Non-Exempt Employees Must be Paid an Hourly Rate of Pay: 

·        All non-exempt hospitality workers (except commissioned salespersons) must be paid on an hourly basis, i.e., no non-exempt salaried workers

·        In calculating the overtime rate of pay, employers no longer may subtract an employee’s tip credit from the regularly hourly rate of pay and then multiply the reduced rate by one and one half; instead, employers must calculate the overtime rate based upon an employee’s full hourly rate 

Employers Must Keep the Following Records for Six Years: 

·        Amount in tips contributed by each employee during each shift (cash and credit)

·        Amount in tips collected by each employee by date (cash and credit)

·        Occupations eligible for tip pooling and each occupation’s respective percentage of the tip pool 

Clarification as to “Service Charges:” 

·        Employers may retain fees identified as “service charges” if, and only if, they clearly explain to customers that such charges are not distributed to service employees 

The Order imposes several important requirements, but unfortunately, leaves employers with a very short amount of time to implement the necessary changes to their payroll and recordkeeping methods. Despite having until February 28, 2011, to comply with the Order, employers will be best served by taking immediate action to bring their businesses in compliance with the new regulations. The interim period during January and February should be utilized to ensure proper records are kept and that an employer’s tip pool is not shared with ineligible individuals. Finally, the bullet points above represent only a portion of the changes under the Order, and employers should become familiar with the entire regulation before the end of the grace period.

Newly Proposed Wage Order Merges Restaurant and Hotel Industry Wage and Hour Requirements

By Amy J. Traub

The New York State Department of Labor recently issued a proposed rule which would combine the current wage orders for the restaurant and hotel industries to form a single Minimum Wage Order for the Hospitality Industry.  If adopted, the Wage Order would affect requirements related to the minimum wage, tip credits and pooling, customer service charges, allowances, overtime calculations, and other common issues within the restaurant and hotel industries.  Additionally, the Wage Order would provide helpful guidance for traditionally ambiguous wage issues such as the handling of service charges and the definition of an employee uniform for purposes of a laundry allowance.  Highlights of the Wage Order include:

·         Minimum Wage (Effective January 1, 2011) 

o       Food service workers would need to receive at least $5.00 per hour and no more than $2.25 per hour in tip credits; however, the total of tips they receive plus their hourly wages would need to amount to $7.25 per hour

o       Service employees (at non-resort hotels) would need to receive at least $5.65 per hour and no more than $1.60 per hour in tip credits; however, the total of tips they receive plus their hourly wages would need to amount to $7.25 per hour

o       Service employees (resort hotel employees) would need to receive at least $4.90 per hour and no more than $2.35 per hour in tip credits; however their weekly average for tips would need to be at least $4.10 per hour 

 

·         Notifications to Employees and Customers 

o       Prior to beginning employment, employers now would need to notify employees that they are taking a tip credit from their wages

o       Employers would need to notify employees of any changes to their hourly rate of pay

o       Employers would need to notify customers of any charge that is neither for food/beverage nor a gratuity to a service employee; for example, a banquet or special function charge 

 

·         No More Set-Off of Wages Paid in Excess of Minimum Wage 

o       Employers would need to pay an additional hour at the rate of minimum wage for each hour the employee works beyond 10 hours per day, regardless of whether the rate of pay for the first 10 hours is above the minimum wage

 

·         No More Salary for Non-Exempt Employees 

o       Currently, a non-exempt employee can still be paid a salary so long as he/she is paid one and one-half times the regular rate of pay for hours worked beyond 40 hours during the week

o       If adopted, the Wage Order would require that all non-exempt workers (except commissioned salespersons) are paid on an hourly basis 

 

·         Tip Pooling 

o       Employers could require food service workers to join a tip pool

o       This would not apply to employees who do not provide direct food service to customers (however, a host/hostess who seats guests would be considered a direct food service employee and therefore eligible to participate in a tip pool) 

 

·         Increased Guidance 

o       Employers would be able to retain service charges if, and only if, they clearly explain to customers that such charges are not distributed to service employees

o       The Wage Order would exclude from the definition of “uniform” any clothing that may be worn as part of an employee’s wardrobe outside of work

o       Employers would not need to reimburse employees for the laundry expenses of any uniform clothing that can be washed with the employee’s non-uniform clothing; for example, a uniform that does not require dry cleaning

The new Wage Order signifies the New York State Department of Labor’s attempt to simplify the wage and hour rules for the restaurant and hotel industries while stepping up its enforcement of overtime and deduction violations, particularly with respect to non-exempt employees who are currently paid a salary as opposed to an hourly wage.   Of course, these highlighted changes are only a portion of the changes that would come into effect in the event the Wage Order is adopted in its entirety.

New York Issues Guidelines, Instructions and Additional Model Notices of Pay Rates and Pay Days

The New York State Department of Labor ("DOL") has recently made available important new information for employers regarding their obligations under Section 195.1 of the Labor Law including notice of pay rates, pay dates and other information.

 

As we previously reported (see EBG Client Alerts of December 11, and October 30, 2009), pursuant to Section 195.1 of the Labor Law (the "Statute"), as of October 26, 2009, employers must provide newly hired New York employees with written notice of their: (1) pay rate; (2) overtime pay rate (if they qualify for overtime pay); and (3) regular paydays.

 

Such notice must be given at the time of hiring, before the employee performs any work. The employer must keep the original notice for at least six years, and the employee must be provided with a copy.

 

The DOL initially did not provide guidance on what type of form an employer was required to utilize for this purpose. Then, late last year, it decided that employers must use the "official" form issued by the DOL on its Web site. Next, as we advised in December 2009, the DOL determined that no particular form is required; rather, employers are permitted to create their own forms (or simply include the requisite information in an offer letter), or use any "official" form published by the DOL.

 

Model Notices, Guidance and Instructions on the DOL's Web site

 

The DOL recently made available on its Web site: (1) additional forms for employers' use (the "Model Notices"); (2) guidelines (the "Guidelines") for complying with the Statute; and (3) instructions (the "Instructions") for completing the Model Notices. Model Notices for the following categories of employees have been published on the DOL's Web site at http://www.labor.state.ny.us/workerprotection/laborstandards/workprot/lshmpg.shtm:

 

  • Hourly Rate Employees
  • Employees with Multiple Hourly Rates (if employee is paid more than one rate for different types of work or different shifts)
  • Employees Paid a Weekly Rate or Salary for a Fixed Number of Hours (if employee works 40 or fewer hours in a week)
  • Employees Paid a Salary for Varying Hours, Day Rate, Piece Rate, Flat Rate or Other Non-Hourly Pay
  • Prevailing Rate and Other Jobs
  • Exempt Employees

Important Information Regarding Notice to Exempt Employees

As stated above, employers need not use the Model Notices published by the DOL. However, if employers create their own forms, or simply include the required information in the text of an offer letter, they must be aware of certain additional requirements, aside from those set forth in the Statute. This is because the text of the Statute includes a statement that the required notices "shall conform to any requirements established by the [Commissioner of Labor] with regard to content and form." While neither the Guidelines nor the Instructions referenced above have the force of an order or a legal opinion issued by the DOL, both can be interpreted as requirements "established by the [Commissioner of Labor] with regard to content and form" of the required notice.

The Guidelines and Instructions both include certain requirements that are not found anywhere within the text of the Statute. For example, and most significantly, the Guidelines and Instructions provide that employers are to include the specific overtime exemption(s) under which an exempt employee falls (e.g., executive, administrative and/or professional). While currently, the Guidelines state that employers "should" include this information, and the Instructions state that employers "must" include this information, we have been informed by the DOL that the Instructions will be changed such that specifying the applicable exemption(s) will be required by both documents (i.e., not merely suggested). Other requirements found in the Guidelines and/or Instructions but that do not appear in the Statute include a requirement that notice must be provided "before any work is performed" and that the employer must maintain the form for at least six years.

No Model Notices for Commissioned Salespersons

As of this date, no Model Notice has been made available by the DOL for commissioned salespersons. The Guidelines, however, provide that employers may include the required information from the Statute within the text of a commission agreement between the employer and the employee, so long as that agreement satisfies the requirements of both Section 191.1(c) of the Labor Law (e.g., the terms of employment must be in writing and include how wages, salary, drawing account, commissions and all other monies earned and payable shall be calculated, and must be signed by both the employer and the employee and kept on file by the employer) and Section 195.1.

 

Should Employers use the Model Notices?

Employers who elect to use the Model Notices should be aware that those models contain information that is not required in the Statute, the Instructions or the Guidelines, such as the name, title and signature of the employer's representative who prepared the form, as well as a general statement regarding overtime pay in New York State (i.e., the Model Notices state that "[m]ost employees in New York State must be paid overtime wages of 1½ times their regular rate of pay for all hours worked over 40 hours per workweek. A very limited number of specific categories of employees must be paid overtime at a lower rate or not at all."). Although it is unclear whether the DOL will deem an employer to be in compliance with the law if this information is omitted from forms prepared by the employer, as discussed above, inclusion of this information could be deemed to be a "requirement[ ] established by the [Commissioner of Labor] with regard to content and form."

 

Finally, although the DOL permits employers to use their own forms to satisfy the requirements of the Statute, if they opt to do so, employers must ensure that those forms meet all of the requirements of the Statute (including the requirements set forth in the recently published Guidelines and Instructions). It should be noted that the DOL advised that employers should review the Guidelines and Instructions online from time to time, as the contents of those documents are subject to change. Finally, regardless of whether employers choose to comply with the requirements of the Statute by using the Model Notices (or a modified form of the Model Notices), their own forms, or by simply including the applicable information in offer letters or commission agreements, it is prudent to include an at-will statement, confirming the employer's right to change an employee's pay rate, pay day or other terms and conditions of employment in the future.

 

For more information about this Client Alert, please contact:

William J. Milani
New York
212-351-4659
Wjmilani@ebglaw.com

Jeffrey M. Landes
New York
212-351-4601
Jlandes@ebglaw.com

Susan Gross Sholinsky
New York
212-351-4789
Sgross@ebglaw.com

Anna A. Cohen
New York
212-351-4922
 Acohen@ebglaw.com

 

NYSDOL Changes Its Tune On 195(1) Notice Requirement

By Bill Milani, Jeff Landes, Susan Gross Sholinsky and Anna Cohen

We previously advised that the New York State Department of Labor ("DOL") had taken the stance that in order to comply with Section 195(1) of the New York State Labor Law (i.e., to provide proper notice to employees of their wages, overtime rates (if applicable) and paydays), employers would be required to utilize the DOL's official forms, which could be accessed at the DOL's Web site.

The DOL has now decided that, while employers may still elect to utilize the DOL's forms, employers need not utilize the DOL's forms in order to comply with Section 195(1). Rather, employers may utilize their own forms. Specifically, the DOL's Web site now states:

No particular form is required. Employers may create their own forms, or use and/or adapt a sample form available [on the DOL's Web site].

If employers elect to utilize the DOL's sample forms, they should understand that the only forms currently available are for hourly non-exempt employees and staffing agencies. The DOL's Web site, however, notes that "[i]n the near future, sample forms for a variety of pay agreements (salaried, prevailing rate, exempt, and others) will be provided." We will advise you when such additional sample forms are published by the DOL.

Based on the DOL's statement, employers will be deemed to be in compliance with Section 195(1), so long as: (i) the employer's form includes employees' pay rate, overtime rate (if applicable) and paydays in the applicable document, (ii) the form is given to employees before they perform any work, (iii) the form is signed by the employee, (iv) the original form is maintained by the employer for a minimum of six years, and (v) a copy of the signed form is provided to the employee. While the DOL has informed us that its preference would be for employers to utilize a stand-alone form in order to comply with Section 195(1), it also has confirmed that if an employer includes all of the applicable information required by the statute in an offer letter, and that offer letter is signed by the employee, kept by the employer, and a copy is provided to the employee, the employer would be in compliance with the statute.