WPI Wage Watch: Minimum Wage, Tip, and Overtime Developments (February Edition)

by Littler
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In February, love was not the only thing in the air; wafting through legislative chambers across the country was the sweet smell of bills about the minimum wage, tips, and overtime. Many bills will be stood up, or ultimately ghosted. But for those that advance, there just might be a legislative love connection.

DOL Sends 20% Rule Back to the Kitchen: In a Field Assistance Bulletin and its revised Field Operations Handbook, the U.S. Department of Labor’s (DOL) Wage and Hour Division says that, consistent with a November 2018 opinion letter, it “will no longer prohibit an employer from taking a tip credit based on the amount of time an employee spends performing duties related to a tip-producing occupation that are performed contemporaneously with direct customer-service duties or for a reasonable time immediately before or after performing such direct-service duties.” The oft-called “20% rule” has been heavily debated and litigated. Though some employers may want to immediately adjust their practices, others may cautiously wait for this hot dish to cool, as courts will inevitably decide whether to defer to the DOL’s interpretation.

New and/or Amended Laws: In February, a new local minimum wage law was enacted, various minimum-wage-related amendments were approved at the state and local level, and a few cities announced their annually-adjusted minimum wage rates.

Workers in Two States Win Fight for $15: A $15.00 per hour minimum wage rate will eventually come to Illinois1 and New Jersey,2 where governors signed minimum wage bills.

Illinois will see two increases in 2020; on January 1, the minimum wage will increase from $8.25 to $9.25 per hour, and will increase again to $10.00 per hour on July 1. Beginning in 2021, a $1.00 per hour annual minimum wage increase will occur on January 1, until the minimum wage hits $15.00 per hour in 2025. For tipped employees, the maximum tip credit will remain 40% of the state minimum wage. The law also sets sub-minimum wage rates for certain employees under age 18, includes tax credits for smaller businesses, and increases fines for minimum wage violations. It remains to be seen whether or how Chicago and Cook County officials will react because, in a few years, the state rate will exceed their local rates.

In New Jersey, a temporary three-tier minimum wage system has been created, with different rates applying to employees generally, to employees of small or seasonal employers, and to employees paid on a piece rate or hourly basis to labor on a farm. The “general” minimum wage rate will see the first increase3 on July 1, 2019, from $8.85 to $10.00 per hour, and, beginning January 1, 2020, will increase $1.00 per hour per year, hitting $15.00 per hour in 2024. The “small or seasonal employer” rate, after initially increasing from $8.85 to $10.30 per hour on January 1, 2020, will increase 80 cents per year, hitting $15.00 per hour in 2026. The “farm labor” minimum wage will increase by varying amounts – beginning January 1, 2020 – becoming $15.00 per hour in 2027. The rates will be annually adjusted, with the general and small/seasonal employer rate merging in 2028, and all three rates merging in 2030.

For tipped employees in the Garden State, a $7.37 per hour maximum tip credit will be established, beginning on July 1, 2019, which will increase to $7.87 on January 1, 2020, to $8.87 per hour on January 1, 2023, and then to $9.87 per hour on January 1, 2028. Although employees of “small” and “seasonal” employers are generally subject to a different minimum wage rate – that is less than the “general” minimum wage rate – a special rule applies for customarily and regularly tipped employees of seasonal employers, i.e., they are subject to the “general” minimum wage rate. Accordingly, the minimum cash wage they must receive is the difference between the “general” – not “seasonal” – minimum wage and the tip credit. The law also includes a training wage for new hires enrolled in an established employer training program during the first 120 hours of work, and tax credits for businesses that hire employees “whose work capacity is significantly impaired by age or physical or mental deficiency or injury.”

Importantly, the impact of these changes will not be limited to non-exempt employees because, under Illinois and New Jersey law, executive, administrative, and/or professional employees are not exempt from state minimum wage requirements; they are exempt only from overtime standards. Accordingly, for exempt employees paid on a salary and/or fee basis, employers must ensure they are paid at least the minimum wage for all hours worked.

Bay Area Blackjack or Bust: The City of Fremont, in Northern California, became the 21st city in the San Francisco Bay Area to enact a local minimum wage ordinance. A two-tier wage system will be temporarily established, with rates varying depending on whether a business employs 26 or more, or 25 or fewer, employees. A $13.50 per hour minimum wage will apply to “large” employers on July 1, 2019, and to “small” employers the following July. A $15.00 per hour minimum wage will apply to large employers on July 1, 2020, and to small employers the following July. Beginning July 1, 2022, one rate will apply, which will be the “large” employer rate, adjusted for cost-of-living increases. The 20th Bay Area minimum wage – in Daly City – took effect on February 13, 2019. Meanwhile, the City of Sonoma voted in favor of progressing towards a draft minimum wage ordinance, and the City of Petaluma scheduled a workshop in April to explore a local law.

Announcing New Minimum Wage Rates: The City of Pasadena, in Southern California, voted to continue its minimum wage experiment and continue following the “L.A. rate schedule,” i.e., the minimum wage for employers with 26 or more employees will increase from $13.25 to $14.25 per hour on July 1, 2019, and then to $15.00 per hour on July 1, 2020. The rate for employers with 25 or fewer employees will increase, on July 1, from $12.00 to $13.25 per hour (2019), $14.00 (2020), and $15.00 (2021). On July 1, 2022, one rate will apply to all employers, which will be $15.00 per hour plus a cost-of-living adjustment.

In New Mexico, both the City of Santa Fe, and County of Santa Fe, announced their minimum wage will increase from $11.40 to $11.80 per hour on March 1, 2019; the county law applies only in unincorporated areas. For tipped employees covered by the city law, the maximum tip credit will increase from $9.27 to $9.67 per hour (resulting in a $2.13 per hour minimum cash wage). Under the county law, the minimum cash wage will increase from $3.41 to $3.53 per hour (authorizing an $8.27 per hour maximum tip credit).

On the Governor’s Desk: If the governor signs Virginia HB 2473, the following individuals will no longer be exempt from payment of the state minimum wage: newsboys; shoe-shine boys; caddies; babysitters; ushers; doormen; concession attendants, and cashiers in theaters.

Passed at Least One House: The following bills were well-received in their legislative house of introduction, but it is uncertain whether the reception will be as warm in the other chamber.

Per Indiana SB 231, an employer would not have to pay a “direct seller” the state minimum wage. New Mexico HB 31 would increase the state minimum wage from $7.50 to $10.00 per hour on July 1, 2019, with dollar increases effective July 1, 2020 and 2021, and cost-of-living adjustments on July 1 in subsequent years. It would also quickly phase out, then eliminate as of July 2022, the tip credit. North Dakota HB 1193 would prohibit local minimum wage and/or living wage ordinances. Vermont SB 23 calls for steadily increasing the minimum wage, which would hit $15.00 per hour in 2024, and would not allow employers to deduct processing fees from credit card tips.

Cleared at Least One Committee: The following bills cleared the first of many legislative hurdles: a committee hearing and vote.

Minimum Wage: Two Hawaii measures would eventually institute a $15.00 per hour minimum wage; in 2024 under HB 1191, and in 2023 under SB 789.

Tip Credit: Under Nebraska LB 400, the minimum cash wage for tipped employees would increase from $2.13 per hour to 40% of the minimum wage in 2020, and to 50% of the minimum wage in 2021 and future years.

Subminimum Wage: Arizona HB 2523 would exempt, from payment of the minimum wage, individuals under age 22 that are employed on a casual basis and enrolled as a full-time student. Such employees could be paid the federal minimum wage if the bill passes. Missouri SB 10 would establish a sub-minimum wage equal to the federal minimum wage or 85% of the state minimum – whichever is greater – for employees under age 18. Hawaii HB 232 would eliminate the state labor department’s ability to adopt rules to permit a sub-minimum wage be paid to individuals whose earning capacity is impaired by old age or physical or mental deficiency or injury. Under Washington HB 1706, sub-minimum wage certificates would no longer be issued for employees with disabilities who are unable to obtain employment in a competitive labor market.

Anti-Preemption: Under Hawaii HB 96, counties could establish minimum wage ordinances with rates that exceed state law requirements.

Tax Credits: Under Hawaii SB 789, a tax credit to offset the proposed minimum wage increase would be provided to businesses with 50 or fewer employees that have no more than $4,000,000 in annual gross income.

New Bills: Numerous bills involving the minimum wage, tips, and/or overtime were introduced throughout the country, including, but not limited to, the following states: Alaska; Florida; Illinois; Iowa; Kansas; Kentucky; Maine; Maryland; Minnesota; Missouri; Montana; New Jersey; New York; North Carolina; Ohio; Oklahoma; Pennsylvania; Rhode Island; Texas; Vermont; and West Virginia. Below we highlight some notable items:

  • Interns & Apprentices: Illinois HB 2180 proposes to require employers to pay interns the full minimum wage, regardless of whether they are receiving college credit for the internship. Montana HB 570 seeks to eliminate the 30-day exemption from the minimum wage for apprentices.
  • Preemption & Anti-Preemption: Florida HB 847 would prohibit local regulation of a “condition of employment,” including wages. Conversely, Oklahoma HB 1131 and 2466, and SB 713 would repeal a state preemption law, thereby allowing local minimum wage ordinances.
  • Politicians v. the People: Various Missouri bills are seeking to roll-back increases to the minimum wage voters approved during the November 2018 election, such as HB 858.
  • Taxes: Under Maine LD 963, overtime pay would not be subject to income taxes.
  • Tip Credits: Rhode Island SB 374 seeks to gradually phase out the tip credit, to be eliminated in 2024. Conversely, New York SB 3815, if enacted, would allow counties to opt out of any wage order that eliminated tip credits.
  • White Collar Salary or Fee Requirements: Maryland HB 1040 would require that, for the executive, administrative, or professional exemption to apply, an employee must be paid $900 or more per week, excluding board, lodging, or other facilities. Vermont HB 137 would require such employees to be paid a salary equal to at least $913 per week.

Courtroom Close-Out: In Arizona, a state appellate court held a state statute that preempted local wage laws was invalid because it violated the Arizona Voter Protection Act. The Florida Supreme Court dismissed the City of Miami Beach’s appeal, thereby leaving in place lower court rulings that found the city’s minimum wage ordinance invalid in light of an existing state preemption statute. Also in Florida, a state appeals court held Miami-Dade County could not enforce its living wage ordinance against a business that provided services to air carriers at an airport on county property, and that an exception to a state preemption law did not apply because services provided were not for the benefit, or on behalf, of the county. Officials in Michigan have asked their state’s supreme court to rule on the validity of changes made to the minimum wage (and paid sick leave) law during the recent lame duck session.

We will continue to monitor and report on minimum wage and overtime developments as they occur.

 

Footnotes

For more details, see Kathryn Siegel, Illinois Governor Signs Bill Raising the Statewide Minimum Wage to $15 Per Hour, Littler ASAP (Feb. 19, 2019).

2 For more details, see Russell McEwan and Emily David, New Jersey Employers Should Expect Minimum Wage Hike to $15 Per Hour, Littler ASAP (Jan. 28, 2019).

3 Technically, the law says that, on January 1, 2020 and on each subsequent January 1, the minimum wage must be increased by an increase in the consumer price index (for the 12 months prior to September 30), except the rates listed in the statute – including the general rate on July 1, 2019 – will apply if they exceed the cost-of-living-adjusted rate for the indicated year.

 

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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