USDOL Issues Interesting Opinion Letter On Car Manufacturer Incentive Payments Use In Meeting Minimum Wage Requirements

Fox Rothschild LLP

Fox Rothschild LLP

The USDOL has been issuing a slew of Opinion Letters of late, under the stewardship of Cheryl M. Stanton, Administrator of the Wage and Hour Division. Many of these deal with bonus issues and how these payments can and should be used by employers vis-à-vis their obligations to be compliant with the FLSA. The agency has issued a new Opinion Letter on the issue of car dealerships using incentive payments from automobile manufacturers to satisfy their minimum wage obligations to their salespeople.

Several car dealerships had submitted requests for advice on the issue of these incentive payments. These are monies that auto manufacturers pay to the dealerships to increase sales. Now, the agency is opining that if the dealership and the employees agree to use such third-party payments as wages, those monies will be applied to employer’s requirement to pay the minimum wage.

The Letter stated that “given these facts, the incentive payments will be considered part of the employment agreement and count toward minimum wage obligations by the employing automobile dealership.” The agency now views these payments to dealership employees as comparable to the tips customers give to servers and bartenders. Under the FLSA, a restaurant employer is allowed to consider the tips as wages, thereby lowering the sums that the business itself must pay to its employees, provided that the combination of cash wage and tips equals/exceeds the governing minimum wage.

The agency cautioned that “this does not mean that all payments from a third party are wages under the FLSA. Ms. Stanton asserted that “whether a payment from a third party constitutes wages depends on the terms of the employment agreement, express or implied, and compliance with the other requirements of the FLSA.”

The Takeaway

I have always believed that Opinion Letters serve an important purpose for employers. They are roadmaps and guidelines for businesses who then can fashion their compensation practices within the four corners of the Letter and thereby gain a “safe harbor” if the employer is ever sued on the issues contained within the Letter. They are important not only for the business that obtained the letter, but for other businesses as well who are dealing with similar scenarios.

Knowledge is power and can keep an employer out of trouble…

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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