Alec Marsh v. J. Alexander's LLC

Filing

FILED OPINION (RICHARD A. PAEZ, SANDRA S. IKUTA and DAVID A. FABER) VACATED; REMANDED.The parties will bear their own costs on appeal. See Fed. R. App. P. 39(a)(4). Judge: RAP Concurring & dissenting, Judge: SSI Authoring, FILED AND ENTERED JUDGMENT. [10569989] [15-15791, 15-15794, 15-16561, 15-16659, 16-15003, 16-15004, 16-15005, 16-15118, 16-16033]

Case: 15-15791, 09/06/2017, ID: 10569989, DktEntry: 97-2, Page 1 of 42

Chapter 30
RECORDS, MINIMUM WAGE, AND PAYMENT OF WAGES
Source: FOH Modernization revision 728, published 11/17/2016. Substantive revisions made after
11/17/2016 are noted at the end of affected provisions below. Historical information on revisions
published prior to 11/17/2016 can be found at the link beside this chapter at www.dol.gov/whd/foh/.

Table of Contents
30a

RECORDS
30a00
30a01
30a02
30a03
30a04
30a05
30a06
30a07
30a08
30a09

30b04
30b05
30b06
30b07
30b08
30b09
30b10
30b11
30b12
30b13
30b14
30b15

30b

30c

Statutory basis.
Microfilms and data processing tapes.
Recording working time.
Long-punching of hours.
Boosted hours.
Items available by extension, re-computation, or transcription.
Posting requirements.
Photographically reproduced posters.
Modification of FLSA poster.
LC 017
Joint employers of an employee.
r's L

Time of payment.
Employee compensated on a commission basis.
Payment of minimum wage to seamen on American vessels.
Crediting a bonus or other payments to a minimum wage deficiency.
Certain subsistence allowances not to be considered wages.
(Reserved.)
State or territorial minimum wage higher than federal minimum wage.
PCA minimum wage.
Annual salary earned in shorter period: minimum wage.
Minimum wage rate applicable to public agency employees.
Minimum rates due domestic service employees.
Minimum wage under section 7(k): work period.

1, 2
nde
lexa tember
MINIMUM WAGE
v. A
p
arsh d on Se
M
n
30b00
FLSAited i
h e
c minimum wage. iv
, arc
30b01
Monthly5791 equivalents.
salary
5-1 rate of pay for non-overtime weeks.
30b02
.1
oMinimum
30b03 N Regular rate of pay for overtime weeks.

PAYMENT OF WAGES
30c00
30c01
30c02
30c03
30c04

Method of payment.
Facilities furnished under section 3(m).
Customarily furnished.
Primarily for the benefit of the employee.
Primarily for the benefit of the employer.

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30c05
30c06
30c07
30c08
30c09
30c10
30c11
30c12
30c13
30c14
30c15
30c16
30d

Reasonable cost of facilities.
Examples of determining reasonable cost.
Fair value of facilities.
Formal determinations of reasonable cost and fair value of facilities.
Facilities: voluntary and un-coerced.
Voluntary assignment of wages, loans, and advances.
Demonstrators - automobile salespersons.
Cost of furnishing and maintaining uniforms.
Deductions from wages of migrant and seasonal agricultural workers.
Employees’ taxes paid by employer may constitute “wages.”
Car expenses: employee’s use of personal car on employer’s business.
Deductions in non-overtime weeks.

TIPS AND TIPPED EMPLOYEES
30d00
30d01
30d02
30d03
30d04
30d05
30d06
30d07
30d08

30e01
30e02
30e03
30e04

30e

30f

General.
Retention of tips by employee.
Tip credits in subminimum wage situations.
Service charges.
Tip pooling.
Tips charged on credit cards.
Determining the tip credit an employer may claim against its minimum wage
obligations.
C
FLSA 3(m) tip credit in overtime hours. r's LL
17
de
1, 20
n
IRS tip allocation rules.
ber
exa

Application of section 6(e)(1): establishment basis.
Application of section 6(e)(1): workweek basis.
Application of section 6(e)(1): contract services.
Overtime and section 6(e)(1).

. Al
ptem
rsh v SERVICES OTHER THAN LINEN SUPPLY
a
n Se
FLSA SECTION 6(e)(1): CONTRACT o
in M
ed
cited 1, archiv
30e00
General 579
1 provisions: section 6(e)(1), contract services (other-than-linen supply
services).
. 15No

FLSA SECTION 6(e)(2): GOVERNMENT CONTRACT LINEN SUPPLY SERVICES
30f00
30f01
30f02
30f03
30f04
30f05

General provision: section 6(e)(2), government contract linen services.
Linen supply services.
Application of section 6(e)(2): establishment basis.
Application of section 6(e)(2): workweek basis.
Application of section 6(e)(2): linen supply services.
Overtime and section 6(e)(2).

30a

RECORDS

30a00

Statutory basis.
Certain of the laws enforced by the Wage and Hour Division (WHD) provide for
recordkeeping regulations. Section 11(c) of the Fair Labor Standards Act (FLSA) requires

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the Solicitor of Labor (SOL) to issue regulations (i.e., 29 CFR 516) prescribing
recordkeeping requirements.
30a01

Microfilms and data processing tapes.

(a)

The preservation of microfilms for the periods required by 29 CFR 516 will satisfy the
requirements relating to preservation of records, provided that adequate projection or other
viewing equipment is available for inspecting the microfilms, and provided the employer is
prepared to make any extensions, re-computations, or transcriptions which may be requested
regarding the information contained on the microfilms. The employer should insure that the
microfilms are clear reproductions of the original records, are identifiable as to dates or pay
periods, and are chronologically arranged before the original records are destroyed.

(b)

Situations may be encountered where the original basic source document on which time
records are maintained is an automatic word or data processing memory. The preservation of
this data base for the periods required will satisfy 29 CFR 516, provided the employer is able
to convert the data, or any part of it, into a form which is suitable for inspection.

30a02
(a)

(b)

Recording working time.
In recording working time, insubstantial, or insignificant periods of time outside the
scheduled working hours may be disregarded. The courts have held that such trifles are de
minimis. This rule applies only where a few seconds or minutes of work are involved and
where the failure to count such time is due to considerations justified by17
LLC 20 industrial realities.
der's er 1small, of the employee’s
An employer may not arbitrarily fail to pay for any part, however ,
xan
. Ale eptemb
fixed or regular working time.
hv

S
rs
n Ma hived on
isome industries, particularly where time clocks are used, there has
It has been found thatd
cite in 1, arc
been the practice of recording the employee’s starting and stopping time to the nearest 5
15791
1
minutes, or to 15. the nearest 10 or 4 of an hour. For enforcement purposes, this practice of
o
N
computing working time will be accepted, provided that it is used in such a manner that it

will not result, over a period of time, in the failure to compensate the employees properly for
all hours they have actually worked.
(c)

If a record is kept with respect to each employee employed on a weekly or monthly basis in
an establishment or department thereof operating on a fixed schedule, indicating the exact
schedule of hours per day and hours per week which that employee is normally expected to
work, and if the payroll (or other) records maintained by the employer indicate for each
worker or for each group of workers that such scheduled hours were, in fact, adhered to, this
will be considered compliance with 29 CFR 516. When fewer or more hours than those fixed
by the schedule are worked, the employer must supplement this record by showing the exact
number of hours worked on the day and week involved.

(d)

The records must also contain a statement made each pay period that, except where otherwise
recorded, the employees worked neither more nor less than the scheduled hours. This policy
is applicable only where hours of work are actually fixed and it is unusual for the
employee(s) to work either more or less than the scheduled hours.

30a03

Long-punching of hours.

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(a)

Where time records show elapsed time greater than the hours actually worked because of
reasons such as employees choosing to enter their work places before actual starting time or
to remain after their actual quitting time, the Wage and Hour Investigator (WHI) shall
determine whether any time is actually worked in these intervals. If an employee came in
early for personal convenience and did no work prior to the scheduled beginning time, a
recording of the fact that the employee worked, for example, 8 hours that day is all that is
required.

(b)

The WHI may suggest to the employer, but not require, that the punch-time be kept as close
to the work-time as possible to avoid any question that work was performed during such
intervals.

30a04
(a)

Boosted hours.
WHIs may find in the payroll records a single figure (either daily or weekly) which represents
the total hours actually worked plus 1 2 of the overtime hours, in lieu of separate entries for
straight-time and overtime hours of work. This is particularly so where machine posting
methods are used. For example, if an employee works 50 hours in the workweek and is
entitled to overtime pay after 40 hours, the boosted hour posting will be 55 hours. The
recordkeeping requirements are met in the case of hourly rate employees by an entry showing
boosted hours, provided the payroll or other records contain sufficient information so that it is
possible, with a reasonable amount of re-computation, to ascertain weekly straight-time
earnings and weekly compensation for overtime. Such information includes:
(1)
(2)
(3)
(4)

30a05

LLC
7
der's er 1, 201
n
actual hours worked,
b
exa
v. Al Septem
rsh
regular hourly rate of pay,
on
Ma
ed in archived
cit
additions to or791,
15 deductions from wages, and
. 15No
total wages paid.

Items available by extension, re-computation, or transcription.

(a)

No recordkeeping violation shall be charged where the employer is maintaining records in
such detail as to be able to ascertain the information in the required individual items in the
various sections of the regulation either upon direct review or through extension, recomputation, or transcription, and the employer is preserving the data for the periods
specified. The use of symbols (such as checkmarks to indicate a regular day’s work) in lieu
of showing the hours worked as numerals is acceptable, provided there is a key to the
symbols which will permit a determination of the time actually recorded as hours worked.

(b)

The WHI may require an employer to make extensions, re-computations, or transcriptions of
records as provided in 29 CFR 516.8 if determination of the employer’s compliance status
through direct review of the records is impracticable. Great care must be exercised to avoid
making unreasonable demands under the regulations.

30a06

Postings requirements.
The recordkeeping regulations under FLSA, Migrant and Seasonal Worker Protection Act
(MSPA), and the government contracts programs require the posting of a poster at the

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establishment or jobsite which summarizes the laws’ basic requirements. If such a poster is
not in place, the WHI shall charge a recordkeeping violation and instruct the employer to
correct the situation.
30a07

Photographically reproduced posters.

(a)

A regional administrator (RA) may approve a request from an employer to post posters
photographically reproduced in a reasonable and moderate size, provided there is no attempt
to evade the posting requirements and the reproductions are of such size and so placed as to
be read easily by the employees.

(b)

If there is doubt as to whether a particular photographic reproduction of a particular poster
meets the foregoing requirements, the RA shall submit the reproduction to the National
Office (NO) for advice.

30a08

Modification of FLSA poster.
Any employer of employees to whom section 7 of the FLSA does not apply because of a total
establishment exemption from that section may alter or modify the FLSA poster so as to
show that the overtime provisions do not apply to employees in the establishment. This may
be done by appending a note to that effect or by superimposing such a notation by a stamp or
other means across that part of the poster which pertains to the statutory overtime
requirements. For example, in the case of railroad employees, the notation may be worded as
C
follows:
's LL
017

30a09

2
er
xand mber 1,
le TOtRAILROAD EMPLOYEES” (section
“OVERTIME PROVISION NOT APPLICABLE ep e
v. A
arsh d on S
13(b)(2)).”
in M
e
cited 1, archiv
Joint employers of an79
15 employee.
. 15o
In cases N
where two or more employers are joint employers of an employee, the employer who
actually pays the employee the monies intended as compensation for hours of employment is
considered responsible for the keeping of records required by the regulation, and is treated as
the one who has the primary duty of compliance as to such hours of employment. Where
each employer makes direct payment to the employee, the employer being investigated may
be deemed to be the one having the primary duty of compliance.

30b

MINIMUM WAGE

30b00

FLSA minimum wage.

(a)
30b01
(a)

The FLSA minimum wage rate is $3.35 per hour, effective 01/01/1981.
Monthly salary equivalents.
Since the number of regularly scheduled work hours may be greater in long months than in
short months, the strict allocation of a regular monthly salary to the hours worked within each
month may result in a technical minimum wage violation in the longer months. However, for
enforcement purposes, a regular monthly salary of $580.67 shall be considered as equivalent
to a weekly wage of $134.00 and accepted as compliance with the $3.35 minimum wage
requirement if it is compensation for 40 hours of work or less in the workweek. If the

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employer rounds out this amount to not more than $585.00 per month, this will not affect the
regular rate (i.e., $3.35) for overtime purposes.
(b)

Where an employee is paid a salary for a period in excess of a workweek (e.g., on a monthly
or semi-monthly basis) and works an alternating schedule of fixed workweeks, and an equal
allocation of the salary would result in payment of less than the minimum wage for the long
workweeks, there will be compliance with the minimum wage provisions of the FLSA
provided:
(1)
(2)

30b02

the salary is sufficient to meet the minimum wage requirements for all hours worked
during the pay period; and
there is an agreement or understanding between the parties that a larger portion of the
salary is to be allocated to the longer workweeks. The employer shall be advised that
the firm’s records should properly reflect the allocation of the salary on a workweek
basis.

Minimum rate of pay for non-overtime weeks.
In non-overtime workweeks or in workweeks in which the overtime provisions do not apply,
an employee subject to section 6 of the FLSA is considered to be paid in compliance if the
overall earnings for the workweek equal or exceed the amount due at the applicable
minimum wage. This is true regardless of whether the employee is paid on the basis of a
single hourly rate, different hourly rates, commissions, certain C
LL bonuses, or7some combination
er'
dtotalsearnings ,for 01 workweek
1 2 the
n
of these methods. In other words, if the employee’s
lexa tember 30b07) divided by
(including certain bonuses such as a production bonus, see FOH
v. A
p
arsh d on Se
compensable hours equals or exceeds the applicable minimum wage, the employee has been
M
in
e
paid in compliancetwith sectionr6.hiv principles will also apply where an employee is not
ci ed 1, a c These
compensated for time which is compensable under the FLSA. For example, if an employee
1579
subject to the $3.35 minimum wage during a workweek is paid for 32 hours at $5.50 per hour
. 15No
and is paid at a lesser rate or nothing at all for 8 or fewer additional hours worked, this
individual is considered to have been paid in compliance with section 6. The WHD position
regarding proper payment in workweeks where overtime is due is set out in FOH 32j02.

30b03
(a)
30b04

Regular rate of pay for overtime weeks.
The principles in FOH 32j02 shall be followed in determining compensation due employees
in overtime workweeks.
Time of payment.
Payment of both minimum wage and overtime compensation due an employee must
ordinarily be made at the regular payday for the workweek or, when the pay period covers
more than a single week, at the regular payday for the period in which the particular
workweek ends. However, when it is not possible, prior to preparing the payroll, to ascertain
the number of overtime hours worked by an employee in the last workweek of the pay period,
the requirements of the FLSA/Walsh-Healey Public Contracts Act (PCA)/McNamara-O’Hara
Service Contract Act (SCA)/Contract Work Hours and Safety Standards Act (CWHSSA) will
be satisfied if the employer pays the overtime compensation as soon after the regular payday
as is practicable. Such a payment should not be delayed for a period longer than is
reasonably necessary for the employer to compute and arrange for the payment of the

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amounts due, but, in any event, not later than the next payday after such computation can be
made.
30b05

Employee compensated on a commission basis.

(a)

Many employers, especially in retail enterprises, compensate certain employees wholly or in
part on a commission basis. The methods of computation and payment involving
commissions vary widely (see 29 CFR 779.413) and the determination of minimum
wage/overtime compliance must be made on the facts of each case. The general principles
(except in circumstances where section 7(i) is applicable) are as follows:

(b)

If an employee paid wholly or in part on a commission basis is subject to overtime, the
principles set out in 29 CFR 778.117 -.122 shall be followed.

(c)

If an employee paid on a commission basis is exempt from overtime, such as salespersons
referred to in section 13(b)(10) of the FLSA, the following shall be used in determining
whether the employee is paid in compliance with minimum wage requirements:
(1)

(2)

There is no requirement that wages be paid weekly, as long as some regular pay
period (such as biweekly or monthly) is established by the employer. The only
requirement is that employees receive prompt payment of the minimum wage
covering all hours worked during the pay period.
A settlement period does not have to coincide withLLC
pay
r's the regular017period. However,
in the absence of strong evidence to theande it must1, 2
contrary, er be assumed that an
x
b
employer intended that a settlement e
t commissions represents the pay period
v. Al period forem
rshWhereon Sep
for the affected employees.
Ma
d a pay (settlement) period exceeds 1 month, the
facts should be developed hive issue submitted to the NO (Attn: Assistant
ed in arc and the
cit
Administrator 791,
15 for Policy) since the bona fides of the pay (settlement) period raise
serious questions as to the validity of the pay arrangement.
. 15o

N

(3)

Periodic draws against commission earnings within the pay (settlement) period need
not equal the minimum wage. Employers may credit these draw or guarantee
payments against their minimum wage obligation when settling out the amount due
employees at the end of the pay (settlement) period. The following examples
illustrate this principle. Assume a 4-week month and that a commission salesperson
exempt from overtime works 50 hours a week (50 x $3.35 - $167.50):
a.

The employer has established payment of a weekly draw against
commissions and a monthly pay (settlement) period. The salesperson draws
$125 a week against earned commissions. By the pay (settlement) date, the
commission salesperson has earned $950 in commissions. The employer
pays the salesperson $450 ($950 - $500 previously paid by weekly draw).
This commission salesperson has been paid in compliance with the monetary
requirements of the FLSA by being paid at least the minimum wage for all
hours of work during the pay (settlement) period.

b.

The circumstances are the same as in FOH 30(c)(3)a. above, but the
employer only pays the salesperson $170 at the end of the pay (settlement)
period in order to bring the individual up to the minimum wage and carries
the balance of $280 over, to be paid on the next pay (settlement) period, thus

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crediting it toward the minimum wage obligation for that subsequent pay
(settlement) period. This salesperson has also been paid in compliance with
the FLSA. Commissions earned but not paid on the next pay (settlement)
date which are in excess of the amount required to satisfy minimum wage
requirements may be carried forward and applied to the minimum wage on
subsequent pay (settlement) dates.
c.

LLC 2 7
der's $1501each01 a total of $600 for
A salesperson is paid four weekly draws of er , for
xan
. Aleperiod. tAtmb end of the month, the
the monthly pay (settlement)
v
p e the
arsh d earnings total $1,000. The employer deducts the
n Se
salesperson’s commission o
in M
e
$600 d draws from ithis amount and pays the remainder (or excess) of $400
cite in 1, arch v
to 1579
the salesperson. The following month, the salesperson is paid $600 in
draws
. 15- and earns no commissions. To meet the minimum wage obligation for

d.

No

e.

The circumstances are the same as in FOH 30(c)(3)a. above, except that the
salesperson has earned only $500 in commissions and is paid an additional
$170 at the end of the pay (settlement) period to meet the total minimum
wage ($3.35 x 200 - $670) due for the hours worked during that month or
pay period. At the end of the following month, the salesperson has earned
$1,000 in commissions. The employer deducts from this amount the $170
that was paid the previous month to bring the employee up to the minimum
wage. The employer pays the salesperson $670 ($3.35 x 200) and carries the
remaining $160 into the next month. This salesperson has also been paid in
compliance with the FLSA. If the employer pays an additional amount ($170
the first month) to satisfy the minimum wage, this amount may be recovered
from excess commissions earned but not paid in subsequent pay (settlement)
periods. Similarly, commissions earned but not paid in a given pay
(settlement) period which are in excess of the amount required to satisfy
minimum wage requirements may be carried forward and applied to the
minimum wage on subsequent pay (settlement) dates.

the salesperson, the employer applies $70 from the $400 excess earned and
paid the previous month. This practice is not in compliance with the
requirements of the FLSA. Any part of a commission that is actually paid to
the employee may not be carried forward as a credit into subsequent pay
(settlement) periods.

Assume the same 50-hour week and that the employer has definitely
established a weekly pay period and has a monthly settlement period. The
salesperson draws $150 a week against earned commissions. This
salesperson has not been paid in compliance with FLSA since this individual
is not receiving the minimum wage for all hours worked in the pay period
(50 x $3.35 - $167.50).
(Note: in the example in FOH 30(c)(3)e., the pay period is 1 week; in the
example in FOH 30(c)(3)a., the pay period is 1 month.)

30b06
(a)

Payment of minimum wage to seamen on American vessels.
Section 6(a)(4) of the FLSA permits an employer to calculate wages for seamen on the basis
of a period longer than a workweek. For example, wages for such employees may be
calculated over a longer period, such as for the entire voyage, on a monthly basis, or, in

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appropriate cases, on a yearly basis. In those cases where wages are calculated on other than
a weekly basis, it is the responsibility of the employer to demonstrate that a pay period of
such duration is in accordance with the established custom of the industry. In addition, the
employee must receive wages at not less than a rate which will provide, for the period
covered by the wage payments, wages equal to the minimum wage for all hours during such
period when the employee is on duty. Thus, if a seaman is paid a monthly salary, the total
hours worked in the month, divided into the salary, must yield at least the minimum wage,
regardless of the varying number of hours worked during the weeks in the month. The same
principle would apply if the wages were computed on the basis of an entire voyage or on a
yearly basis.
(b)

30b07
(a)

(b)

It is the custom of some employers in the maritime industry to pay by the month or by the
voyage but, for the convenience of the employees, to make two or more partial payments
rather than a single payment covering the period involved. For example, monthly
compensation may be disbursed in two partial payments (semi-monthly), or partial payments
may be made weekly on the basis of 1/52nd of the annual pay derived by multiplying 12
times the monthly salary. Such arrangements do not affect the principles stated in FOH
30b06(a) above.
Crediting a bonus or other payments to a minimum wage deficiency.
A bonus or other payment which would not be considered a part of the regular rate may not
be offset against the minimum wage due under the FLSA. However, where such payments
would be considered a part of the regular rate, they arer's LLCwith other wages for
e included 2017
purposes of determining compliance with the xand wage provisions of the FLSA. See 29
minimum ber 1,
m
Ale
CFR 778.208 -.209.
epte
h v.

ars
nS
in M wherevthe wages paid on the regular payday are not sufficient
ed o
Situations may be iencountered rchi
c ted 1, a
to satisfy the minimum wage, but the employee at some subsequent date is paid additional
1579
wages (e.g., . 15a production bonus) for those workweeks included in the bonus payment period.
No
When the additional wages are added to the wages paid on the regular payday, the results are

either that the employee has received not less than the minimum wage for each hour worked
during that week or that the amount of the minimum wage deficiency has been reduced. In
such situations, a monetary violation of the minimum wage provisions exists since payment
of not less than the minimum wage required by the FLSA must be made on the regular
payday for each workweek (see FOH 30b04). However, where the additional wages for a
particular workweek have actually been paid prior to the investigation, and they are sufficient
to bring the employee’s wages up to the minimum wage for each hour worked during that
week, no minimum wage violation shall be reported for that workweek. If such additional
wages paid prior to the investigation are not sufficient to bring the employee’s earnings up to
the minimum wage for each hour worked during that week, the amount of the remaining
minimum wage deficiency shall be computed and reported. The employer shall be advised
that no less than the minimum wage must be paid on each regular payday and the employer’s
assurance of future compliance shall be obtained.
30b08
(a)

Certain subsistence allowances not to be considered wages.
Governmental subsistence allowances to veterans for vocational training or to disabled
handicapped veterans, as well as allowances furnished by a state to civilians for
rehabilitation, are not considered wages and may not be used by the employer to offset wages
which the employee is entitled to receive under the law.

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(b)

No part of a veteran’s basic pension award or other grants made by the U.S. Department of
Veterans Affairs during a veteran’s training period may be considered as wages paid by the
employer.

30b09

(Reserved.)

30b10

State or territorial minimum wage higher than federal minimum wage.

(a)

If no overtime has been worked in a workweek, no attempt shall be made to enforce a state or
territorial minimum wage which is in excess of that provided in acts enforced by the WHD.
However, the appropriate authorities shall be notified of the underpayment.

(b)

Should overtime have been worked, the regular rate of pay cannot be lower than the
applicable state, territorial, or federal minimum, whichever is higher. See FOH 32j01.

30b11

PCA minimum wage.
All covered employees performing work on a contract which is subject to PCA must be paid
the minimum wage of at least $3.35 per hour for all hours spent in such contract work. See
41 CFR 50-202.2.

30b12

Annual salary earned in shorter period: minimum wage.
Certain employment, such as that in schools, does not normally constitute7 months of
LLC 20 12
der's ethe1annual1salary earned during
actual work each year. For the convenience of the employee, r ,
xan m throughout the entire year. In
the duty months is often paid in equalv. Ale installmentsb
monthly
pte
determining whether the statutory minimum wagee been paid in such cases, the annual
arsh d on S has
in M the duty
salary is considerededrelation tochive months rather than in relation to the entire year.
citain 1,busrdriver may receive an annual salary of $6,000 for 10 months’
Thus, for example, school a
579
duty but be paid5-1
. 1 12 equal monthly installments of $500 each. In such case, the employee is
No
considered as being paid at the salary rate of $600 per month or $138.46 per week.
Compliance with the statutory minimum wage is determined in the usual manner based on
this weekly salary. See FOH 22b11 and FOH 32b08.

30b13

Minimum wage rate applicable to public agency employees.
Individuals employed by a public agency are subject to the FLSA minimum wage standard,
including federal non-appropriated fund employees who are subject to section 6(a)(l)
pursuant to section 18 of the FLSA. The WHD has no authority under the FLSA for the
enforcement of the provisions of section 18; such matters are within the authority of the
Office of Personnel Management. 5 USC 5341 requires the section 6(a)(1) rate for prevailing
rate system (so called “blue collar” or Wage Board) federal employees.

30b14

Minimum rates due domestic service employees.

(a)

Domestic service employees are within FLSA coverage by virtue of section 6(f).

(b)

Under section 6(f)(1), an employee must receive cash wages of at least $50 in a calendar
quarter from a single employer; for purposes of this test only, cash wages received from a
single employer are counted.

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(c)

Pursuant to section 3(m) and 29 CFR 531, the reasonable cost to an employer of board,
lodging, or other facilities customarily furnished to employees is considered part of wages for
purposes of the FLSA.

(d)

Employers are responsible for determining whether persons they employ in domestic service
are covered under the FLSA, that is, whether they work more than 8 hours per week in the
aggregate for 1 or more employers, or whether they have sufficient earnings to qualify. This
may require asking the employee about domestic service with other employers.

30b15

Minimum wage under section 7(k): work period.
The work period chosen pursuant to section 7(k) (see 29 CFR 553.230), rather than the
workweek, is to be treated as the unit for minimum wage purposes. The employee’s total
compensation for the work period is divided by the total number of hours worked in the work
period to determine compliance with the minimum wage provisions of the FLSA,
notwithstanding that in particular days or weeks within the work period the employee’s
earnings do not yield the minimum wage for such shorter periods.

30c

PAYMENT OF WAGES

30c00

Method of payment.

(a)

(b)

30c01

Wages may take the form of cash or facilities as defined in 29 CFR 531. An employer who
claims furnished facilities (i.e., meals, lodging, or other)'s LLC must 17
as wages
maintain the records
required in 29 CFR 516.27.
nder er 1, 20
xa

. Ale
temb
rsh v on Sepemployee’s bank account is an
The payment of wages through direct deposit into an
n Maprovided employees have the option of receiving payment by
acceptable methodtof d i
e payment, rchived
ci
1, a
cash or check directly from the employer. As an alternative, the employer may make
1579 to cash a check drawn against the employer’s payroll deposit
arrangements for employees
15No.is at a place convenient to their employment and without charge to them.
account, if it

Facilities furnished under section 3(m).

(a)

Section 3(m) of the FLSA permits an employer, under conditions specified in 29 CFR 531, to
count toward its minimum wage obligation, the reasonable cost of furnishing board, lodging,
or other facilities which are customarily furnished to employees. Section 3(m) also
authorizes the Secretary of Labor to determine the fair value of the board, lodging, or other
facilities based upon average cost to the employer or to groups of employers similarly
situated, or on the average value to groups of employees. Where reasonable cost under
section 3(m) has been established by an employer and appears to be excessive in relation to
the facilities furnished, it will be necessary to ascertain whether the fair value of the facilities
in question is lower than the reasonable cost. If so, the employer must use the fair value
rather than the reasonable cost in determining its wage obligation. In no case will the fair
value be utilized where it is greater than the reasonable cost.

(b)

The cost of board, lodging, or other facilities shall not be included as wages to the extent
excluded therefrom under the terms of a bona fide collective bargaining agreement applicable
to the particular employee. In most cases, a determination whether such an exclusion exists
will be based upon the written provisions of the collective bargaining agreement.

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(c)

30c02

Employees must receive the benefit of the facility for which the employer is taking a wage
credit. Moreover, the reasonable cost to the employer of furnishing board, lodging, or other
facilities (or the fair value thereof) must be included in the employee’s regular rate of pay for
the purpose of computing overtime pay.
Customarily furnished.

(a)

The reasonable cost of board, lodging, or other facilities may be considered as part of the
wage paid an employee only where customarily furnished to the employee. This requirement
is satisfied if either the facilities are furnished regularly by the employer to its employees or if
the same or similar facilities are customarily furnished by other employers engaged in the
same or similar trade, business, or occupation in the same or similar communities. However,
customarily furnished does not require establishing an industry-wide practice with regard to
charges being made for facilities furnished to employees.

(b)

Facilities furnished in violation of any federal, state, or local law, ordinance, or prohibition
will not be considered facilities customarily furnished (e.g., housing that has been denied an
occupancy permit, or which, after inspection, results in MSPA civil money penalties
(CMPs)). Any question as to whether facilities are furnished in violation of any law should
be referred to the Assistant Administrator for Policy for resolution. Any such referral should
include a detailed discussion of the facts and a copy of the applicable law.

30c03
(a)

Primarily for the benefit of the employee.

LLC
7
der's er 1as201 will depend on
n
The crediting by an employer of facilities furnished to employees , wages
b
exa
whether such facilities are furnished primarily for eptbenefit or convenience of the
v. Al S the em
rsh Where the primary benefit of such facilities is to the
employee, as determinedn Ma WHD. d on
by the
di
einterest, credit will be denied. The following are commonly viewed as
hive
employer’s business
cit
, arc or convenience of employees:
furnished primarily for791
15 the benefit
. 15No
(1)
Meals
Meals furnished by the employer are regarded as primarily for the benefit and
convenience of the employees. This rule does not apply, however, to the meal
expenses incurred by an employee while traveling away from home on the
employer’s business. See 29 CFR 778.217(b)(3).
(2)

Lodging
Lodging, like meals, is ordinarily considered for the benefit and convenience of the
employee. Circumstances may exist, however, where housing is of little benefit to
employees, as where an employer requires an employee to live on the employer’s
premises to meet some need of the employer, or where the employee must travel
away from home to further the employer’s business. In such circumstances, the
housing will be considered as primarily benefiting the employer. (Note: while it may
be to the employer’s advantage to provide such facilities at or near the worksite,
courts have consistently taken the view that the employer may take a wage credit
when the facilities are primarily for the benefit or convenience of the employee.)

(3)

Transportation

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a.

b.

Transportation furnished for normal home to work travel from a voluntary
assembly point to a job site and vice versa where the time does not constitute
hours of work and the transportation is primarily for the benefit of the
employees is an “other facility.” In contrast, travel to distant or remote job
sites is normally for the employer’s benefit and does not qualify as an “other
facility.”

c.

(4)

Transportation furnished employees between their homes and work (i.e.,
normal, daily home-to-work travel) where the travel time does not constitute
hours worked is generally an “other facility.” However, transportation which
is an incident of or necessary to the employment is not an “other facility.”
See FOH 30c13 regarding transportation of migrant and seasonal agricultural
workers.

Cars furnished by an employer to employees primarily for the personal
transportation use of the employees and not primarily for company business
are facilities for which a wage credit may be claimed by the employer. See
FOH 30c11 regarding demonstrators used by automobile salespersons.

Merchandise
Goods or merchandise, such as clothing and appliances, may be considered “other
facilities” under section 3(m) and 29 CFR 531. Only the actual cost to the employer
LC
(not necessarily the retail cost) may be taken as 'a wage credit.017
rs L

(5)

(6)

1, 2
nde
lexa tember
Tuition expenses
v. A
p
arsh d on Se
M
in
Tuition furnished to an rchive for courses or training for the individual’s own
cited 1, a employee
personal benefit 9 a bona fide facility for which a wage credit may be taken, unless
157 is
the training is related to employment or is required to retain employment.
. 15No
Child care
Child care facilities which are furnished by an employer are bona fide facilities for
which a wage credit may be taken.

30c04
(a)

Primarily for the benefit of the employer.
The following are examples of items not considered bona fide other facilities under section
3(m) and 29 CFR 531, because they are provided primarily for the benefit or convenience of
the employer:
(1)

Electric power used for commercial production in the interest of the employer.

(2)

Telephones used for business purposes.

(3)

Taxes and insurance on the employer’s building which is not used as lodging
furnished to the employees.

(4)

Medical services and hospitalization which the employer is obligated to furnish under
workers’ compensation laws or similar federal, state or local laws.

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(5)
(6)

Business-related travel expenses. See 29 CFR 778.217.

(7)
30c05

Rental of uniforms where the wearing of a uniform is required by law, the employer,
or by the nature of the work.

Necessary tools or uniforms used in the employee’s work.

Reasonable cost of facilities.

(a)

Reasonable cost cannot exceed the actual cost to the employer. In deciding whether wage
credits for facilities are in amounts permissible under section 3(m) and 29 CFR 531,
experience and judgment must be used by WHIs and district directors. It should be kept in
mind that the test in 29 CFR 531.3 is reasonable cost rather than market value or comparable
prices. Reasonable cost does not include a profit to the employer. The cost of furnishing
lodging and/or other facilities must be established based upon available records. The
employer has the burden of establishing such cost and must maintain adequate records to
support a determination, as required by 29 CFR 516.27. Bills, purchase orders, and cash
register tapes may be appropriate for such purpose. A comparison of wage credits for
comparable facilities furnished by other employers in the area may also provide guidance.

(b)

The method used by an employer for determining reasonable cost must be based on good
accounting practices. Good accounting practices do not include accounting practices which
are not accepted by the Internal Revenue Service (IRS).

(c)

30c06
(a)

LLC
7
der's cost r 1, 201 For example,
Furthermore, an employer may not take a creditan
where no e is incurred.
b
ex
when a meal is made available to an employee, but is tnot consumed, and subsequently is
v. Al Sep em
rsh for service to customers, no credit may be taken.
retained in the employer’s inventory
on
Ma
ed in archived
cit
1,
Examples of determining reasonable cost.
1579
15No.service establishments
Meals: food
(1)

The reasonable cost of meals furnished by a food service establishment to its
employees includes only the actual cost to the employer of the food, its preparation,
and related supplies. Salary or wage costs, as distinguished from material or supply
costs, may be claimed only to the extent that such salary or wage costs are shown to
be directly attributable to the cost of providing meals to employees. If food
preparation/serving employees of a food service establishment would be paid the
same rate of pay even if meals were not provided to the employees of the
establishment, their wage costs cannot be included in determining reasonable cost.
Conversely, if it were necessary to hire extra personnel or pay higher wages to
existing employees in order for them to assist in furnishing meals to employees, such
extra expense would be a legitimate cost which could be included in determining the
reasonable cost of meals.

(2)

Costs which a food service employer incurs regardless of whether the employees
were furnished meals may not be included in determining the reasonable cost. In a
food service establishment, items such as employee insurance, payroll taxes, menus,
decorations, other operating supplies, laundry, telephone, maintenance services,
advertising and promotion, building and equipment rental, licenses and taxes,
insurance and depreciation, franchise cost, and general administrative costs are a part

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of the overall cost of the operation of the employer’s business establishment which
may not be charged to the reasonable cost of employees’ meals.
(b)

Meals: non-food service establishments
Determination of the reasonable cost of meals furnished to employees of an establishment
which is not a food service establishment involves different criteria for expenses for which an
employer may take credit. For example, where meals are provided to employees of a nonfood service establishment by a catering service and there are no special facilities wherein
meals are consumed, the actual cost of the catering service, assuming no rebate to the
employer, would be the reasonable cost. In more complex situations where dining areas are
provided, the factors discussed in FOH 30c06(a) above must be considered in making a
determination of the reasonable cost of meals furnished to employees of a non-food service
establishment.

(c)

Lodging
Employers taking credit for housing as part of wages must show that the amounts charged are
not more than the actual cost to the employer. See 29 CFR 531.3(a). However, if the actual
cost of providing lodging is more than its established rental value, the rental value shall be
deemed to be the reasonable cost of lodging. See FOH 30c07. The actual cost to the
employer generally involves the following factors:
(1)

LLC
7
der's er 1, 201
n
exa
29 CFR 531.3(c) allows an employer to include mb
v. Al Septe adequate depreciation as an element
a h d on
of cost. Depreciation is rs
in M a concept primarily used in and extensively regulated under
e
i applicable to certain capital goods (e.g., buildings,
the tax laws. d
cite Depreciationhisv
ar
,etc.).c It is never applicable to land. For purposes of 29 CFR 531,
1
vehicles, machines,
1579
5-depreciation” is not more than the amount of depreciation actually claimed
“adequate
1
No.
and allowed under the tax laws for the property in question for the period in question.
Adequate depreciation

It should be noted that the amount of depreciation allowable on any property may
vary from year to year. If the employer declines to provide tax returns or similar
evidence as to the claim and allowance of depreciation under the tax laws, no
allowance will be made under 29 CFR 531.3(c).
a.

For tax purposes, depreciation might be claimed under several line items for
property involved in the furnishing of a facility. For example, an employer
furnishing lodging might properly claim the depreciation of the building at
one place; the depreciation of the beds at another; and the depreciation of
linens at another. The addition of several such items of depreciation could be
appropriate. Similarly, an employer might claim, in a single line item,
depreciation on a greater piece of property than is involved in furnishing the
facility in question. For example, the owner of a 20 unit motel who furnishes
one unit for the lodging of an employee might claim depreciation on the
entire motel building as a single line item. Under these circumstances, pro
rata allocation of the claimed depreciation would be required. In the
example, assuming no complications (e.g., no part of building used for other
proposes; all units equal size, etc.), the allowable depreciation would be 1 20 =
5 percent of the total depreciation taken.

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b.
(2)

For tax purposes, depreciation is claimed by the year and can be prorated as
appropriate.

Capital invested
The computation of “a reasonable allowance (not more than 5 ½ percent) for interest
on the depreciated amount of capital invested by the employer” (as referred to in 29
CFR 531.3(c)) is made as follows:
Step 1: An amount, V, represents the total depreciable value of the property to the
employer. See FOH 30c06(c)(1) above. This number is not derived from or
necessarily related to fair market value. Ordinarily, this will be the purchase price
plus the cost of capital improvements. It should be noted that no part of the cost of
land is included.
Step 2: Compute the amount, A, by which the depreciable value, V, exceeds the
depreciation already taken (or which might have been taken) as a tax deduction (i.e.,
subtract total allowable depreciation to date from V, the result is A.) This number is
required to be reported on the employer’s tax returns. If the employer declines to
make tax returns available for verification, then A shall be deemed to be 0. If A = 0,
no further computation is required; the allowance for this part is 0.
Step 3: Determine the amount, E, of the employer’s equity in V. This would
ordinarily be the sum of the down payment, portionsLC
1 payments applied
r's L of mortgage 7
toward principal, and the cash contributionde
any 1, 2 improvements
n toward bercapital0
exa tem
included in V.
v. Al
ep

arsh
on S
in M hibyed times (A). Conceptually, this is the portion of the
Step 4: Compute (E divided v V)
cited 1, arc
equity which579not been returned to the employer through depreciation. A
has
reasonable1
. 15- allowance (i.e., a return on investment of up to 5 ½ percent of this
No
number) may be included in the employer’s cost.
(d)

Cost of operation
(1)

Annual costs of operation incurred in furnishing lodging facilities must be considered
in making reasonable cost determinations: these include interest on loans to purchase,
maintain, or improve the lodging facility, taxes, repairs and maintenance, insurance,
and utilities (e.g., electricity, water, sewers, garbage collection, fuel oil, and so forth.)
Repair and maintenance expenses refer to the costs which are not included under
capital improvements. Only the portion of those costs which are directly related to
the lodging facility used by the employee(s) may be taken into account in
determining the actual cost of providing the lodging. As an example, the cost of
property insurance should be prorated in proportion to the space of the lodging
actually used by the employee(s).

(2)

When the employer leases a property from another person, the amount of rent paid by
the employer to the other person is considered part of the reasonable cost provided
that the rent charged provides no profit for the employer, directly or indirectly. As an
example, if an employer pays a higher rental charge with the promise of a rebate
from the property owner as an encouragement to lease certain lodging facilities, such
higher rent payment may not be used as a component of the reasonable cost for

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leasing the lodging facilities. The allowable reasonable cost amount would be the
rent paid by the employer minus the amount of rebate promised and received by the
employer from the property owner.
(3)

30c07

When determining the weekly reasonable cost of a lodging facility which may be
claimed as a wage credit, the sum of the annual costs (as determined in FOH
30c06(d)(1) -(2) above) is divided by the number of weeks during which the lodging
facility is used for occupancy. Where the facility is used for other purposes, in
addition to lodging, the annual cost is first prorated among the uses. Once the weekly
reasonable cost amount has been determined, it should be divided by the actual
number of occupants in the lodging facility where each is provided an equal amount
of living area. However, if the living areas within the lodging facility are not equal in
size, the weekly reasonable cost amount should be divided by the square feet of the
dwelling. The wage credit which may be claimed per employee in such cases shall
be based upon the number of square feet occupied by the employee and /or that
individual’s family.

Fair value of facilities.
In those cases where cost to the employer is not a true measure of the value of the facilities to
the employees, it may be appropriate to apply the fair value provisions of section 3(m). “Fair
value” is not synonymous with “reasonable cost.” The fair value of a facility allowable under
section 3(m) as wages may be utilized in lieu of the actual measure of cost in determining the
LC
7
wages paid to any employee. Such a determination is authorized for defined classes of
r' L
deors er 1, 201 obtain a
employees and in defined areas based on averagen
cost average value. To
b
exa
determination of fair value, the facts specified in 29ptem
v. Al Se CFR 531.4 and .5 should be obtained and
rshAdministrator for Policy.
a
the issues submitted to the Assistant
d on
in M

30c08

e
cited 1, archiv
Formal determinations9 “reasonable cost” and “fair value” of facilities.
157 of
. 15o
29 CFR N
531.4 -.5 set forth the procedures to be followed in making a formal determination of

“reasonable cost” or “fair value” as these terms are used in section 3(m), whether initiated by
the WHD Administrator or any interested person. When such a request is made, the
petitioner should be informed of the procedures and instructed to forward the request and
required information to the WHD Administrator.
30c09

Facilities: voluntary and un-coerced.

(a)

An employer may credit against cash wages owed employees the lesser of reasonable cost or
fair value, in accordance with 29 CFR 531 and the principles in FOH 30c01 -08, of facilities
regularly provided to employees.

(b)

29 CFR 531.30 provides that an employee’s acceptance of facilities must be voluntary and
uncoerced. The “voluntary and un-coerced” provision has been rejected in several court of
appeals and district court decisions regarding meals provided to employees. The WHD no
longer enforces the “voluntary” provision with respect to meals. Therefore, where an
employee is required to accept a meal provided by the employer as a condition of
employment, the WHD will take no enforcement action, provided that the employer takes
credit for no more than the actual cost incurred. See FOH 30c05 and 06.

30c10

Voluntary assignment of wages, loans, and advances.

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(a)

Although sums paid by an employer under voluntary assignment of an employee to a third
party for the benefit of the employee are not bona fide facilities, they may be deducted from
the employee’s wages provided the employer does not directly or indirectly benefit.
Deductions for administrative or bookkeeping expenses incurred by the employer in
connection with such payments, however, are illegal to the extent that they cut into the
minimum wage or overtime pay due under the FLSA.

(b)

While loans and cash advances made by an employer are not facilities the principal may be
deducted from the employee’s wages even where such a deduction cuts into the minimum
wage or overtime due under the FLSA. Deductions for interest or administrative costs on the
loan or advance are illegal to the extent that they cut into the minimum wage or overtime pay.
The existence of the loan or advance shall be verified to the extent possible.

(c)

In the situation where an employee is granted vacation pay prior to that individual’s
anniversary date, or the established date of entitlement, with the understanding that such pay
constitutes an advance of pay and the employee quits or is terminated before the entitlement
date, the employer may recoup the advanced vacation pay, even where such recoupment cuts
into the minimum wage or overtime pay required under the FLSA.

30c11

Demonstrators: automobile salespersons.
Transportation which the employer provides to an employee is not furnished as a facility for
purposes of section 3(m) if it is an incident of and necessary to the employment or if the
LLC
transportation is furnished for travel by the employee which constitutes 17 worked
hours
der's(c)). r 1, 20
n
compensable under the FLSA (see 29 CFR 531.32(a) and e Demonstrators which are
b
exa
provided to automobile salespersons for their personalemas a form of advertising are not
v. Al Sept use
rsh and donnot constitute wages under the FLSA. This is
primarily for the benefit of employees d o
Ma
d n r IRS e
etheifact thatchivmay require employers to treat as taxable income any
true notwithstanding
cit
,a
portion of the benefit5791 by the employee.
received

-1

30c12
(a)

15
No.

Cost of furnishing and maintaining uniforms.
Where uniforms are required by law, employer, or type of work
If the wearing of clean uniforms is required by law, by the employer, or by the nature of the
work, the financial burden of furnishing or maintaining these clean uniforms may not be
imposed upon the employees if to do so would reduce their wages below the minimum wage
(see 29 CFR 531.3(d)(2), 29 CFR 531.32(c), and 29 CFR 531.35).

(b)

Cost of and time spent in maintaining uniforms
(1)

Where employee uniforms require ironing, drycleaning, daily washing, commercial
laundering, or other special treatment, because of heavy soiling in work usage or in
order to meet cleanliness or appearance standards set by law, by an employer, or by
the nature of the work, the employees must, absent documentation of the greater or
lesser cost, be reimbursed for uniform maintenance costs which reduce their wages
below the minimum wage in accordance with the amounts set forth in FOH
30c12(b)(3) below.

(2)

However, in those instances where uniforms are

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a.

made of “wash and wear” materials,

b.

may be routinely washed and dried with other personal garments, and

c.

do not require ironing or any other special treatment such as drycleaning,
daily washing, or commercial laundering,

the WHD will not require that employees be reimbursed for uniform maintenance
costs. This position is not applicable where daily washing is required and the
employer furnishes or reimburses the employee for a single uniform.
(3)

For enforcement purposes, the WHD will accept the payment to the employee of
$3.35 per week or 67 cents per day as satisfying this requirement.

(4)

Since the uniform cost would presumably be the same for any day, regardless of the
number of hours worked, allocating this cost on an hourly basis should be avoided
except as in FOH 30c12(d)(2) below. However, if an employer pays on a cents-perhour basis, no monetary violation will exist if the employees receive the full daily
and/or weekly amounts in each workweek as indicated in FOH 30c12(b)(3) above.

(5)

Where this enforcement position is followed, the time spent in washing uniforms will
not be considered hours worked for either minimum wage or overtime pay purposes.

(6)
(c)

Employers or employees are free to establish actual costs, as indicated in FOH
LLC
7
der's r 1, 201
30c12(d) below.
n
a

be
ex
v. Al Septem
Employee chooses not to use arsh
free
M employer’s on laundry service
ed in archived
cit
Where an employer gives 1,
79notice to employees that the employer will launder or clean all
uniforms required-to be worn by employees, free of any charge, and all or some employees
5 15
o. 1
elect notN avail themselves of such service, the employer will not be required to reimburse
to
the employees for expenses incurred by them for laundering or cleaning their uniforms on
their own.

(d)

Other standards for determination of cost
(1)

The enforcement position in FOH 30c12(b)(3) above does not prohibit the
determination of the cost of laundering or maintaining uniforms from being made on
some other basis, so long as the actual cost does not cut into required minimum wage
or overtime compensation. For example, where an employer contracts with a laundry
or rental service and in turn charges the employees or requires the employees to bear
the cost directly, the actual cost may be used if reasonable.

(2)

Similarly, where a specific amount has been negotiated under a bona fide collective
bargaining agreement (e.g., 5 cents for each hour worked), this amount may be used,
if reasonable.

(3)

Where the employer does not use the flat daily or weekly basis set forth in FOH
30c12(b)(3) above, it is essential that the WHI determine and document in the case
file the actual cost incurred by the employee.

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(4)

(e)

In preparing a case for settlement or for litigation, the enforcement position in FOH
30c12(b)(3) cannot be relied upon as a basis for action where the employer uses
another basis for reimbursing employees for uniform maintenance expenses.

Cost of purchasing and repurchasing uniforms
(1)

(2)

This reimbursement must be made promptly on the regular payday for the workweek
in which the expense was incurred and may not be spread over the life of the
garment.

(3)

Further, employers may not avoid such costs by requiring employees to obtain
uniforms before starting the job. In such a case, the cost of the uniform is, in effect,
an advance of an expense that must be borne by the employer.

(4)

(f)

When an employee is required to purchase a uniform, the employee must be
reimbursed for the cost of the uniform to the extent that the expense cuts into the
minimum wage or overtime compensation required by the
FLSA/PCA/SCA/CWHSSA.

On the other hand, where an employee already has a uniform which has been paid for
by the firm, and the employee is paid at least the minimum wage and proper overtime
and there is a clear understanding between the employer and the employee that so
much per hour will be paid in addition to the minimum wage for the sole purpose of
replacing an existing uniform, and, in fact, the amountC paid is sufficient to
7
s LL so
der'or noer 1, 201
purchase replacement uniforms when xan out
worn
longer serviceable, no violation
e
mb
would occur.
v. Al
epte

S
arsh
in M hived on
Definition of “uniforms”
cited 1, arc
579
(1)
Although -1 are no hard-and-fast rules in determining whether certain types of
. 15 there
No
dress are considered uniforms for purposes of section 3(m), the following principles
are applicable:
a.

b.

On the other hand, where the employer does prescribe a specific type and
style of clothing to be worn at work (e.g., where a restaurant or hotel requires
a tuxedo or a skirt and blouse or jacket of a specific or distinctive style, color,
or quality), such clothing would be considered uniforms.

c.
(g)

If an employer merely prescribes a general type of ordinary basic street
clothing to be worn while working and permits variations in details of dress,
the garments chosen by the employees would not be considered to be
uniforms.

Other examples would include uniforms required to be worn by guards,
cleaning and culinary personnel, and hospital and nursing home personnel.

Employee elects to buy additional uniforms in excess of number required
Where an employer supplies, free of charge, or reimburses the employees for a sufficient
number of uniforms required to be worn, and all or some employees elect to purchase
additional uniforms in excess of the number required, the employer will not be required to

CHAPTER 30 TABLE OF CONTENTS

Case: 15-15791, 09/06/2017, ID: 10569989, DktEntry: 97-2, Page 21 of 42

reimburse the employees for costs incurred in purchasing uniforms in excess of the required
number.
(h)
30c13
(a)

For the application of these principles on uniforms under SCA, see FOH 14f01 and 29 CFR
4.168(b).
Deductions from wages of migrant and seasonal agricultural workers.
The reasonable cost or fair value of facilities furnished a migrant or seasonal agricultural
worker are generally creditable as wages. However, see FOH 30c03. Examples of facilities
for which deductions or credits are generally permissible include:
(1)

Meals and beverages actually furnished to the worker.

(2)

Off-the-job insurance authorized by the worker.

(3)

Canteen articles purchased by the worker, but not cigarettes or alcoholic beverages
sold to the worker, if such sales are determined to be unlawful by appropriate local
law enforcement authorities. Apparent violations of state or local licensing laws
should be referred promptly to the appropriate enforcement authority. See FOH
52a09, FOH 53g03 and FOH 54: WH-124. Prior to disallowing a deduction or wage
credit based upon action by a state or local authority concerning illegal sales, the
matter should be discussed through joint review committee (JRC) procedures.

(4)

LLC
er's r required7
dcosts, unless1, 201 to be provided free
Lodging used by a worker, including utility
e
xan
of charge pursuant to the employment contractemb
. Ale ept or applicable law. However, no credit
v
h
may be taken nor mayars charge ben S where:
any
made
in M hived o
ed
cit
arc
a.
workers91,required to live on the premises as a condition of employment or
7 are
-15
where for other reasons
o. 15 the employee, or the housing primarily benefits the employer rather
N
than
b.

c.

(b)

the housing has been denied an occupancy permit because of failure to meet
substantive safety and health standards as determined by an inspection by
any agency, or
safety and health violations have been found for which MSPA CMPs are
being assessed or violations of substantive safety and health standards have
been found by Occupational Safety and Health Administration (OSHA), a
state, or county agency. If the violations are corrected, a charge may be
made or a credit taken for such lodging only during the period of compliance.

DOL Employment and Training Administration (ETA) regulations require that workers
placed pursuant to a job service clearance order who are unable to return daily to their
permanent residence must receive housing as a term and condition of their employment.
Such workers (and accompanying family members) must receive housing at no cost or public
housing which meets the federal and state standards (see 20 CFR 653.501(d)(2)(xv)). Where
it appears that a deduction has been made or a wage credit taken in apparent violation of ETA
regulations, the matter should be reviewed through JRC before disallowing the deduction or
wage credit.

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(c)

An employer who makes deductions from the wages of workers for board, lodging or other
facilities or who furnishes such facilities to workers as additions to wages is required to
maintain records substantiating the cost of such facilities in accordance with 29 CFR 516.27.

(d)

In Marshall v. Glassboro Service Association. Inc., the Third Circuit affirmed the district
court’s judgment that money advanced to farm workers for transportation costs from Puerto
Rico to the mainland was primarily for the benefit of the employer and therefore could not be
deducted from the workers’ wages to the extent it reduced the wages below the statutory
minimum. The court similarly upheld the district court’s conclusion that the FLSA prohibits
the employer from taking a wage credit for facilities excluded from wages by the terms of a
labor agreement which is the functional equivalent of a collective-bargaining agreement. The
U.S. Supreme Court denied review. The Court of Appeals also ruled that, regardless of the
manner or method by which the employer sought to pass on to its employees certain
transportation costs, where the effect was to bring the wage rate below the statutory
minimum, such practice was unlawful.

(e)

It is the WHD position that no deduction that cuts into the minimum wage may be made for
transportation of migrant workers from the point of hire and return to that point. This is so
since in virtually all situations the transportation is primarily for the benefit of the employer
and transportation costs are an incident of and necessary to the employment of migrant
workers. Where an employer advances money to migrant workers to cover transportation
expenses from the point of hire to a worksite, the employer may not recoup such advances
when to do so results in a worker receiving less than the statutory minimum wage. Such
C
7
remains the case even though the transportation costs so's LL
r recovered are accumulated and
detime during ,the 01 or upon the
1 2 season
n
subsequently returned to the worker at someexa
l specifiedtember
worker’s return to the point of hire,h v. A individual has worked a full season or specified
after the
Sep
rs
o costs may not be included as part of an
portion thereof. Further, n Ma
such transportation n
i
ed
employer’s cost citfurnishing archiv
of ed
board, lodging, or other facilities.

1,

(f)

579
15-1

Farm laboro.
N contractors and agricultural associations often provide daily transportation to both
migrant and seasonal farmworkers as an integral part of their business of supplying
agricultural workers to those who use their farm labor contracting services. Agricultural
employers also transport their own workers under similar circumstances. Such daily
transportation is provided to assure that sufficient workers will be available at the required
time and place since the workers being transported are needed to work upon perishable
commodities. Their availability for employment often depends upon being provided
transportation. Where alternative transportation is readily available which the workers are
permitted to use (i.e., personal auto or carpool arrangements) and where they know the
location of the place where they are to work, the reasonable cost to an employer (or fair
value, whichever is less) in providing transportation may be creditable towards wages.
In contrast, where furnishing transportation to workers is primarily for the benefit and
convenience of the employer, and is necessary to and an incident of the employment, it is not
considered a facility within the meaning of section 3(m). See 29 CFR 531.32(a) and 29 CFR
531.32(c). Accordingly, it is the WHD position that:
(1)

Where the transportation is an incident of and necessary to the employment, it is for
the benefit of the employer and no deduction may be made for the transportation of
migrant or seasonal farmworkers that cuts into the minimum wage. For example,
transportation of migrant or seasonal farmworkers from the pickup point and return

CHAPTER 30 TABLE OF CONTENTS

Case: 15-15791, 09/06/2017, ID: 10569989, DktEntry: 97-2, Page 23 of 42

to that point, or from the temporary labor camp to the fields or for the return trip is
transportation that is an incident of and necessary to the employment.
(2)

Where the transportation is not incidental to the employment, it is for the worker’s
benefit and deductions may be made which cut into the minimum wage, provided
that if such transportation is subject to MSPA it must be furnished in vehicles which
meet all substantive federal and state motor vehicle safety and insurance standards.
Transportation which is not incidental to the employment (and thus deductible)
includes:
a.

b.

30c14
(a)

(b)

the transportation of migrant workers to conduct personal business, such as
trips from the rural temporary labor camp to a laundry, post office, and
grocery store; and
the daily transportation of migrant and seasonal farmworkers, where
alternative transportation is readily available, which the workers have the
option to use, and they know where to report to work but choose to use the
employer’s transportation, provided that the transportation is not required to
be furnished by law or regulation.

Employees’ taxes paid by employer may constitute wages.
Pursuant to 29 CFR 531.38, taxes which are assessed against an employee and which are
collected by the employer and paid to the appropriate government agency7 constitute
may
LLC
der's er 1, 201
n
wages.
xa

. Ale
temb
rsh v on Sep
a
The same principle applies to taxes which, although owed by the employee, are paid by the
in M hived
employer. Thus, aned
employer may pay an employee’s share of social security (i.e., Federal
cit
arc
Insurance Contributions 91,(FICA)) taxes. Such payment constitutes wages and may
7 Act
15
therefore be . 15- toward the minimum wage and overtime requirements.
o credited
N
(1)

Where an employee receives the minimum wage of $3.35, the employer and the
employee must each make a FICA contribution of 24 cents an hour ($3.35 x .0715 =
.2395). 7.15 percent is the current FICA rate which is, of course, subject to change.
Scenario:
Description
Employer pays employee
Employee pays FICA
Total wages

Calculation
$3.11
+$0.24
$3.35

Payroll costs
Employer pays employee

$3.11

Employee pays FICA

$0.24

CHAPTER 30 TABLE OF CONTENTS

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Employer pays FICA
Total payroll costs
(2)

+$0.24
$3.59

Where the employer pays the employee’s FICA contribution, a smaller direct wage
payment to the employee would normally be made. Because the amount of the direct
payment to the employee is reduced, the employer’s FICA obligation, which is a
percentage of that amount, would also be reduced. Since the employee and the
employer contribute an equal percentage of FICA, the employee’s obligation (which
the employer is assuming) has also been reduced. By reducing FICA expenses, this
practice permits an employer to reduce payroll costs without reducing an employee’s
net post-FICA wages.
a.

An employer may pay an employee $3.13 in direct wages and still meet the
minimum wage obligation ($3.35 - $3.13)
1.0715
Scenario:
Description
Employer pays employee

Calculation
$3.13

+$0.22 C
LL
7
der's er 1, 201
n
b
exa
Total wages
$3.35
v. Al Septem
rsh
on
Ma
Payroll in
ed costs archived
cit
1,
1579 pays employee
Employer
$3.13
. 15Employee pays FICA for employee

No

Employee pays FICA for employee
Employer pays own FICA
Total payroll costs

$0.22
+$0.22
$3.57

b.

c.

30c15

Where this practice is utilized, the employee’s direct wages and the FICA
contribution paid on behalf of the employee by the employer must meet the
statutory minimum wage.
The same principle is applied when crediting the FICA contributions to
overtime compensation due. However, FICA contributions paid on the
employee’s behalf by the employer must be included in the regular rate of
pay for overtime purposes.

Car expenses: employee’s use of personal car on employer’s business.
In some cases it is necessary to determine the costs involved when employees use their cars
on their employer’s business in order to determine minimum wage compliance. For example,
car expenses are frequently an issue for delivery drivers employed by pizza or other carry-out
type restaurants.

CHAPTER 30 TABLE OF CONTENTS

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(a)

As an enforcement policy, the IRS standard business mileage rate found in IRS Publication
917, “Business Use of a Car” may be used (in lieu of actual costs and associated
recordkeeping) to determine or evaluate the employer’s wage payment practices for FLSA
purposes. The IRS standard business mileage rate (currently 28 cents per mile) represents
depreciation, maintenance and repairs, gasoline (including taxes), oil, insurance, and vehicle
registration fees. In situations where the IRS rate changes during the investigation period, the
applicable rates should be applied on a pro-rate basis.

(b)

The IRS standard business mileage rate may be used in lieu of actual costs for FLSA
purposes whether or not the employee will be able to take a deduction on his or her tax return
for the business use of the employee’s car.

30c16

Deductions in non-overtime weeks.
Deductions for article that do not qualify as “board, lodging, or other facilities” under FLSA
section 3(m), such as tools, equipment, cash register shortages, and other similar items, may
be made in non-overtime workweeks (i.e., weeks of 40 hours or less, and weeks in which
statutory overtime does not apply) provided the employee continues to receive, after the
deductions are made, any required minimum wage, free and clear, for all compensable hours
worked in the week (i.e., average hourly earnings for the workweek after the deductions are
not less than the highest applicable minimum wage enforced by the WHD). See 29 CFR
531.35 and .36.). Deductions for non-3(m) items that cut into the highest applicable
minimum wage enforced by the WHD are illegal in a non-overtime workweek unless the law
LLC
establishing that minimum wage (e.g., the Davis-Bacon 'and Related Acts 7
1 (DBRA), SCA, Hder s er 1,if2a0MSPA contract
2A, H-1B, etc.) allows the particular deduction an wages. Note:
from
b
ex
specifically discloses that the employer.will makeeptem
v Al S certain particularized deductions not
rsh deductions would be permitted. For example, if a
otherwise prohibited by in Mlaw, those d on
other a
ed disclosed avwage rate of $8.00 per hour and fully disclosed in
hi e
MSPA-covered employer
cit
, arcthat $1.50 per hour would be deducted for non-3(m) items,
writing at the time 15791
of recruitment
and the deductions are otherwise legal and not prohibited by other applicable laws, then those
. 15No
fully-disclosed deductions are permitted to reduce the hourly wage to below the $8.00 per
hour contracted promised wage (i.e., to $6.50 per hour). Furthermore, various other federal,
state, and local laws regulate payment of wages, prohibit or restrict payment of wages in
services or facilities, outlaw kickbacks, restrain assignments, and otherwise govern the
calculation of wages and frequency and manner of paying them. Nothing in the FLSA or
other WH-administered statutes, regulations, or interpretations overrides or nullifies any
higher standards or more stringent provisions of these other laws. See 29 CFR 531.26.
(WHD enforcement in non-overtime workweeks is limited to the highest applicable minimum
wage enforced by the WHD, which includes WHD-enforced prevailing wages when they
apply (e.g., DBRA, SCA, H-1B, etc.). If no overtime has been worked in a particular week,
the WHD will not enforce any other state of local minimum wage higher than the highest
minimum wage applicable under the laws enforced by the WHD; the WHI will advise the
employer of the apparent violation of such other higher minimum wage standards and notify
the appropriate authorities of the employer’s deductions policies and possible underpayments
that may have occurred. See FOH 30b10. Permissible deductions in an overtime week are
discussed in FOH 32j08.

30d

TIPS AND TIPPED EMPLOYEES

[12/15/2016]

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Case: 15-15791, 09/06/2017, ID: 10569989, DktEntry: 97-2, Page 26 of 42

30d00

General.

(a)

Tipped employees are subject to the section 6(a)(1) minimum wage. Section 3(m) of the
FLSA (see 29 USC 203(m)) permits an employer to claim a partial credit against its
minimum wage obligation to a tipped employee based on tips received by the employee.
This credit against wages due is called a tip credit. 29 CFR 531 contains further guidance on
this topic. The cash wage required under section 3(m), when an employer takes a tip credit,
is not a subminimum wage. Tipped employees are entitled to the full section 6(a)(1)
minimum wage, which may be comprised of both a direct or cash wage and a tip credit as set
forth in section 3(m). The terms “direct wage” and “cash wage” are used interchangeably in
the FOH when discussing the tip credit.

(b)

Section 3(m) of the FLSA makes clear the intent of Congress to place on the employer the
burden of proving the amount of tips received by tipped employees and the amount of tip
credit, if any, which the employer may claim against its minimum wage obligations. The
employer may not claim a tip credit greater than the tips received. If the direct (or cash) wage
paid plus the tips received is less than the section 6(a)(1) minimum wage, the employer is
required to pay the balance on the regular pay day for the pay period so that the employee
receives at least the minimum wage with the combination of wages and tips.

(c)

The language of section 3(m) was amended by the Small Business Job Protection Act of
1996. Effective 08/20/1996, section 3(m) provides:

LLC
“In determining the wage an employer is required to pays tipped employee, the amount paid
e a r 1, 2to –7
danr'amount equal 01 (1) the cash wage
such employee by the employee’s employer shalln
a be
Alex ptembe
paid such employee which for purposes.of such determination shall not be less than the cash
sh v on Se
wage required to be paid n Mar employeeon August 20, 1996; and (2) an additional amount
such an
d
i
hive
on account of the tipsd
cite received by such employee which amount is equal to the difference
, arc
between the wage specified in paragraph (1) and the wage in effect under section 206(a)(1) of
791
5-15 amount on account of tips may not exceed the value of the tips
this title. The 1
No. additional
actually received by an employee. The preceding two sentences shall not apply with respect
to any tipped employee unless such employee has been informed by the employer of the
provisions of this subsection, and all tips received by such employee have been retained by
the employee, except that this subsection shall not be construed to prohibit the pooling of tips
among employees who customarily and regularly receive tips.”
The required cash wage to be paid a tipped employee on 08/20/1996 was not less than $2.13
per hour.
(d)

FLSA 3(m) tip credit
The “FLSA 3(m) tip credit” is the tip credit an employer is permitted to claim against its
minimum wage obligations as determined by section 3(m). Under section 3(m), the sum of
the cash wage paid and the FLSA 3(m) tip credit will always equal the section 6(a)(1)
minimum wage.

(e)

Tip credit principles
As amended in 1996, section 3(m) limits the tip credit an employer may claim against its
minimum wage obligations to “the difference between the wage specified in paragraph (1)
and the wage in effect under section 206(a)(1).” Thus, the FLSA 3(m) tip credit is capped at

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the difference between the section 6(a)(1) wage and the direct or cash wage paid. The direct
wage paid may not be less than the cash wage required to be paid a tipped employee on
08/20/1996, which was $2.13 per hour. Under section 3(m), the direct wage paid may be
comprised of cash, board, lodging, or facilities in accordance with 29 CFR 531 and FOH 30c.
Because the FLSA limits the section 3(m) tip credit to the difference between the cash wage
paid and the federal minimum wage, for purposes of the FLSA, employees who are paid
using the 3(m) tip credit are paid the minimum wage for each hour they work in a nonovertime workweek.
29 CFR 531.50
(1)

Definition of tipped employee
A “tipped employee,” as defined in section 3(t) of the FLSA (see 29 USC 203(t)), is
any employee engaged in an occupation in which the individual customarily and
regularly receives more than $30.00 a month in tips.
Although some states define “tipped employee” differently, the definition in section
3(t) is used for FLSA enforcement purposes.
Tip provisions apply on an individual employee basis. An employer may claim the
tip credit for some employees even though the employer cannot meet the
requirements for others.

(2)

LLC
7
der's er 1, 201
29 CFR 531.50(b)
n
b
exa
v. Al Septem
rshemployee
Tips are the property of the
on
Ma
ed in archived
cit presented by a customer to the tipped employee as a gift or gratuity in
A tip is a sum 791,
5
recognition of some service performed for him or her. See 29 CFR 531.52. The only
1 -1
o. in 5
N
ways which an employer may use its employee’s tips are through a valid tip pool,
as defined in FOH 30d04, or as a partial wage credit. See FOH 30d00(d) and FOH
32j18(h). These restrictions on an employer’s use of its employees’ tips apply even
when the employer has not taken a tip credit; in such a case, the employer may only
use its employee’s tips in furtherance of a valid tip pool.

(3)

Notice requirement
An employer cannot take an FLSA 3(m) tip credit unless it informs the tipped
employee of the provisions of section 3(m) prior to taking a tip credit. Where an
employer does not inform the tipped employee of the use of the tip credit, the full
minimum wage is due. See FOH 30d01(b).
29 CFR 531.59(b) states that the employer must inform its tipped employees, in
advance of taking the FLSA 3(m) tip credit, of the following requirements in section
3(m):
a.

The amount of the cash wage that is to be paid to the tipped employee by the
employer, which may not be less than $2.13 per hour

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b.

The additional amount by which the wages of the tipped employee are
increased on account of the tip credit claimed by the employer

c.

The amount of the tip credit claimed may not exceed the value of the tips
actually received by the employee

d.

All tips received by the tipped employee must be retained by the employee
except for a valid tip pooling arrangement limited to employees who
customarily and regularly receive tips

e.

An employer may not claim a tip credit for any employee who has not been
informed of these provisions

The WH-1088: Employee Rights under the FLSA (minimum wage poster) alone is
not sufficient to meet these regulatory requirements. See 29 CFR 531.59(b) and
WHD Opinion Letter FLSA (January 21, 1997).
(4)

Deductions
a.

No.

b.

Non-3(m) deductions when employer claims an FLSA 3(m) tip credit
When the employer claims an FLSA 3(m) tip credit, the tipped employee is
considered to have been paid only the minimum wage for all non-overtime
hours worked in a tipped occupation; however, for overtime hours the
LLC 2017
der's erminimum wage. Because
employee’s regular rate may exceed the FLSA 1,
xan
section 3(m) caps a tipped employee’semb wage in a non-overtime
. Ale ept hourly
h v wage,
workweek at the s
Mar minimumon S an employer that claims an FLSA 3(m) tip
d
in
credit may not take ive
cited 1, archdeductions for non-3(m) costs (e.g., walkouts, cash
register 9
7shortages, breakage, cost of uniforms, etc.), because any such
5-15 would reduce the tipped employee’s wages below the minimum
1 deduction
wage. Even when an employer pays more than the $2.13 minimum direct
wage, the employee will have only received the minimum wage, and non3(m) deductions cannot be made. For example, if an employer pays a direct
wage of $3.13, the FLSA 3(m) tip credit will be $4.12 ($7.25 - $3.13 =
$4.12), and the employee will have only received the minimum wage for all
non-overtime hours.
Non-3(m) deductions when the employer does not claim an FLSA 3(m) tip
credit
Non-3(m) deductions may only be made from a tipped employee’s wages
when the employer does not claim an FLSA 3(m) tip credit and pays a direct
wage in excess of the minimum wage. For example, if an employee receives
$10.00 per hour in cash wages, the employer cannot claim an FLSA 3(m) tip
credit, and the employer may take up to $2.75 ($10.00 - $7.25 = $2.75) in
non-3(m) deductions from the employee’s hourly wage. See 29 CFR 531.37.

(5)

Other laws

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Where the FLSA and a state or local law regulating wages for tipped employees are
concurrently applicable, it is the employer’s responsibility to comply with the more
protective wage standard.
(f)

Dual jobs
(1)

When an individual is employed in a tipped occupation and a non-tipped occupation,
for example, as a server and janitor (dual jobs), the tip credit is available only for the
hours spent in the tipped occupation, provided such employee customarily and
regularly receives more than $30.00 a month in tips. See 29 CFR 531.56(e).

(2)

29 CFR 531.56(e) permits the employer to take a tip credit for time spent in duties
related to the tipped occupation of an employee, even though such duties are not by
themselves directed toward producing tips, provided such related duties are incidental
to the regular duties of the tipped employees and are generally assigned to the tipped
employee. For example, duties related to the tipped occupation may include a server
who does preparatory or closing activities, rolls silverware and fills salt and pepper
shakers while the restaurant is open, cleans and sets tables, makes coffee, and
occasionally washes dishes or glasses.

(3)

However, where the facts indicate that tipped employees spend a substantial amount
of time (i.e., in excess of 20 percent of the hours worked in the tipped occupation in
the workweek) performing such related duties, no tip credit may be taken for the time
LC 017
spent in those duties. All related duties count toward the 20 percent tolerance.
r's L

(4)

2
ande
e 1,
leaxtip credit mbther time that a tipped employee
A
Likewise, an employer may not take
ept for
h v. the tippedeoccupation. For example,
spends on work that isarsrelated to n S
not
in M
ed o
maintenance work (e.g., chiv bathrooms and washing windows) are not related to
cited 1, ar cleaning
the tipped occupation of a server; such jobs are non-tipped occupations. In this case,
1579
the employee is effectively employed in dual jobs.
. 15No

[12/15/2016]
30d01
(a)

Retention of tips by employee.
General
As noted above, tips are the property of the tipped employee who receives them, regardless of
whether or not the employer claims a tip credit. All tips received (i.e., given to or designated
for the employee by a patron) by a tipped employee must be retained by the employee, and
the employer may only utilize the employee’s tips as a partial credit against its wage payment
obligations or in furtherance of a valid pooling arrangement. An employer and employee
cannot agree to waive such employee’s right to retain all tips received. An employer’s use of
an employee’s tips for any other purpose will be treated as a deduction from the employee’s
wages and would be an FLSA violation to the extent that it reduces total compensation below
what the Act requires. See WHD Opinion Letter FLSA (October 26, 1989).
Tips in excess of the FLSA 3(m) tip credit may not be credited toward an employer’s
minimum wage obligations. Where an employer has claimed an FLSA 3(m) tip credit, it has
paid the employee only the federal minimum wage for any hours in a non-overtime

CHAPTER 30 TABLE OF CONTENTS

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workweek, regardless of the amount of tips received by the employee in excess of the tip
credit amount.
(b)

3(m) requirements not observed
Where an employer does not strictly observe the provisions of section 3(m) (the employer
fails to provide adequate notice of the use of the tip credit, the employer does not pay a cash
or direct wage of at least $2.13 per hour, the tips received by the employee are less than the
amount of tip credit claimed and the employer does not make up the difference during the pay
period, or the employer utilizes the employee’s tips for any purpose other than a valid tip
pool) no FLSA 3(m) tip credit may be claimed, and the employee is entitled to receive the
full cash minimum wage, in addition to retaining all tips he or she received.
For example, where an employer does not fulfill its obligation under 29 CFR 531.59(b) to
inform a tipped employee of the provisions of section 3(m), or pays no wages to an employee
who receives tips, the full minimum wage is due and no FLSA 3(m) tip credit will be
allowed.
(1)

A tip credit may not be retroactively included in back wage calculations
The WHD will not allow an employer to claim an FLSA 3(m) tip credit on a
retroactive basis where the employer has not met the requirements for taking a tip
credit. For example, an employer that pays no wages (i.e., employees received only
tips) will be required to pay the full minimum wage and will not be able to claim an
LLC
7
der's when1, 201
n
FLSA 3(m) tip credit. This same principle applies er the employer pays a cash
b
exa
wage that is less than the minimumlrequired. tFor example, where the employer pays
v. A Sep em
rsh the on
a cash wage of $2.00 per hour, d employer will be required to pay the full minimum
Ma
d i be rc by e
ewilln offsethivthe $2.00 payment, and will not be able to claim an
wage, which
cit
1, a
FLSA 3(m) tip credit. Similarly, employers that require tipped employees to
1579an invalid tip pool will be required to pay the full minimum wage
15
contribute-tips to
No.
and restore to the tipped employees the amount of tips that were improperly used.
See FOH 30d04.

(2)

Employee retention of tips when no tip credit is claimed
Tips are the property of the employee whether or not the employer has taken a tip
credit under section 3(m) of the FLSA. See 29 CFR 531.52. Therefore, the employer
is prohibited from using an employee’s tips, whether or not it has taken a tip credit,
for any reason other than that which is statutorily permitted: as a credit against the
employer’s wage obligations to the employee, or in furtherance of a valid tip pool.
Where the employer does not claim a tip credit under section 3(m) of the act, but
requires employees to contribute to a tip pool that includes non-tipped employees (an
“invalid tip pool”), a violation will occur if such pooling deprives a tipped employee
of any amount of the tips the employee actually received and the employer does not
pay a sufficiently high cash wage to reimburse the employee for such loss, plus at
least the minimum wage. See WHD Opinion Letter FLSA (October 26, 1989).
When an employee’s required contribution to an invalid tip pool in a non-overtime
workweek is so great that he or she does not receive all of his or her tips plus the
required minimum wage, the employee will be considered to have contributed all

CHAPTER 30 TABLE OF CONTENTS

Case: 15-15791, 09/06/2017, ID: 10569989, DktEntry: 97-2, Page 31 of 42

such improperly redistributed tips to the employer, resulting in a minimum wage
violation. See WHD Opinion Letter FLSA (October 26, 1989).
The following examples demonstrate the application of this principle in a nonovertime workweek. For purposes of these examples, assume that the employer does
not take a tip credit against its wage obligations and that the employee is paid an
$8.50 hourly wage and averages $15.00 per hour in tips. Note: the closer an
employee’s wage rate is to the statutory minimum, the greater the chance that
diversion of a portion of his or her tips will raise compliance questions under the
minimum wage provisions of the act.
Scenario 1:
The employer diverts $1.00 per hour of the employee’s tips to non-tipped employees.
There would be no minimum wage violation since the net hourly amount received by
the employee ($14.00 tips + $8.50 wage = $22.50) is in excess of the total amount of
tips plus the current minimum wage of $7.25 ($15.00 + $7.25 = $22.25).
Scenario 2:
The amount of the diversion is $3.00 per hour. Here there is a minimum wage
violation since the net amount received by the employee ($12.00 tips + $8.50 wages
= $20.50) is less than the total amount of tips plus the current minimum wage of
C
$7.25 ($15.00 + $7.25 = $22.25).
's LL
017

2
er
xand mber 1,
le 26, 1989)
WHD Opinion Letter FLSA (October
v. A
pte
arsh d on Se
nM
e
In Oregon Restaurantd i Lodging Ass’n et al. v. Solis, 948 F. Supp. 2d 1217 (D. Or. 2013),
cite and1, archiv
the U.S. District Court79 the District of Oregon declared the DOL’s 2011 regulations that
5 for
5-1use of its employees’ tips when the employer has not taken a tip credit
limit an employer’s
1
No.
against its minimum wage obligations to be invalid, and imposed injunctive relief. That
litigation is still ongoing. Therefore, the DOL is currently prohibited from enforcing its tip
retention requirements against the Oregon Restaurant and Lodging Association plaintiffs
(which include several associations, one restaurant, and one individual) and members of the
plaintiff associations that can demonstrate that they were a member on 06/24/2013. The
plaintiff associations in the Oregon litigation were the National Restaurant Association,
Washington Restaurant Association, Oregon Restaurant and Lodging Association, and Alaska
Cabaret, Hotel, Restaurant, and Retailer Association. As a matter of enforcement policy, the
Department decided that while the injunction is in place it will not enforce its tip retention
requirements against any employer that has not taken a tip credit in jurisdictions within the
Ninth Circuit. The Ninth Circuit has appellate jurisdiction over California, Nevada,
Washington, Oregon, Alaska, Idaho, Montana, Hawaii, Arizona; Guam; and the Northern
Mariana Islands.
[12/15/2016]
30d02

Tip credits in subminimum wage situations.
Subminimum wages authorized under section 14 of the FLSA are considered to be the
applicable minimum wage in determining amounts creditable toward the minimum wage for
tips for purposes of section 3(m). For example where an employee is subject to a

CHAPTER 30 TABLE OF CONTENTS

Case: 15-15791, 09/06/2017, ID: 10569989, DktEntry: 97-2, Page 32 of 42

subminimum wage of $6.00 per hour, the maximum permissible FLSA 3(m) tip credit against
the subminimum wage would be $3.87 ($6.00 subminimum wage - $2.13 direct or cash wage
= $3.87).
[12/15/2016]
30d03

Service charges.
A compulsory service charge (generally noted on the menu) which is added to a customer’s
bill is not part of the server’s (i.e., waiter and/or waitress) tip income but, rather, is included
with the employer’s gross receipts. Therefore, the employer has complete discretion in
choosing the manner in which the compulsory service charge is used, which would include
using it to pay servers and/or bussers. Where the service charges are paid to employees, they
are considered wages that must be included in the regular rate of pay. Where service charges
are imposed and the employees receive no tips, the employees are not tipped employees and
the employer must pay the entire minimum wage and overtime required by the FLSA. If, in
addition to service charge income, the servers receive tips from customers, such tip income
may be credited toward the minimum wage in the usual manner if the employee qualifies as a
tipped employee and the employer has met all obligations to claim a tip credit. The
employer, for example, may use the service charge amount to pay the minimum $2.13 cash
wage, or when an employee does not receive sufficient tips to make up the difference
between the cash wage payment and the minimum wage, the employer may also use the
service charge to increase the cash wage rate to make up the difference. See 29 CFR 531.55.

LLC 0 7
der's er 1, 2an1
The WHD’s policy is to consider all of the factsanassessing whether amount added to a
x in
. Ale eptemb
bill is a tip or a service charge, particularly evidence indicating whether the payment is
hv
mandatory or optional, including whether then S
Mars ved o customer exercises discretion regarding
in
whether the quality ed service merits the payment and the amount of the payment;
cit of the 1, archi
whether the customers79
15 (and/or the recipients of the service) are informed that the payment is
optional, and may-be increased or decreased at their discretion; and whether in fact there is
. 15
No

some variation in the amounts paid. There must be evidence of actual discretion over the fact
of and amount of the payment in order for the amount to be considered a tip and not a service
charge. Such evidence may take any form, including a notation on an invoice, a “chit”, a
signature on a bill, an email, telephone message, or other notation reflecting directions to
adjust the amount of the payment as appropriate.
29 CFR 531.52 and 29 CFR 531.55
WHD Opinion Letter FLSA 2005-31
WHD Opinion Letter FLSA (July 12, 1999)
WHD Opinion Letter FLSA (August 29, 1997)
WHD Opinion Letter FLSA (June 5, 1996)

[12/15/2016]
30d04

Tip pooling.

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(a)

The requirement that an employee must retain all tips does not preclude tip-splitting or
pooling arrangements among employees who customarily and regularly receive tips.
Employer-required, or mandatory, tip pools may only include employees who customarily
and regularly receive tips.

(b)

The following occupations have been recognized as those in which employees customarily
and regularly receive tips:
(1)

Waiters and waitresses

(2)

Counter personnel who serve customers

(3)

Bellhops

(4)

Bussers (i.e., server helpers)

(5)

Service bartenders

In addition to the above-listed occupations, the WHD has recognized the following
occupations as ones in which employees customarily and regularly receive tips:
(6)

(7)

(8)

Sushi chefs or teppanyaki chefs, who are similar to counter personnel because they
have direct contact and interact with customers and prepare and serve meals to
customers in the bar area or customer tables.
LLC
17

er's r 1, 20
e
xand mbbussers because they learn
Bartender assistants or barbacks, Ale are similar to
v. who Septe
bartending under the tutelage of a bartender, have the primary duty of supporting the
arsh
in M their tips d on bartender. Barbacks work primarily in the
bartender,itedreceive chivefrom the
r
c and the opportunity to occasionally interact with customers.
bar area and have 1, a
79
-15
o. 15 who explain the wine list, bring the selected bottle of wine to the table,
N
Sommeliers
and serve the wine to the customers.

WHD Opinion Letter FLSA 2009-12
WHD Opinion Letter FLSA 2008-18
WHD Opinion Letter FLSA (June 28, 1985)
There may be court decisions in a particular region that address the parameters of what
constitutes a customarily and regularly tipped employee. The DD and/or the ADD should
inform WHIs of any cases that may apply. If the DD and/or the ADD is in need of further
guidance, he or she should consult with the respective regional solicitor’s office.
(c)

It is not required that all employees who receive tips from a mandatory tip pool themselves
receive tips from customers as long as they work in an occupation recognized as one in which
employees customarily and regularly receive tips. The amounts retained by the employees
who actually receive the tips, and those given to other pool participants, are considered the
tips of the individuals who ultimately retain them, in applying the provisions of sections 3(m)
and 3(t).

CHAPTER 30 TABLE OF CONTENTS

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(d)

The FLSA does not restrict the amount of tips an employee can be required to contribute to a
valid tip pool. The employer must notify the employees of any required tip contribution
amount, may only take a tip credit for the amount of tips the employee ultimately receives,
and may not retain any of the employee’s tips for any other purpose. See 29 CFR 531.54.

(e)

Tips contributed to a mandatory tip pool must not lower the rate of the employee below the
minimum wage. Only those tips that are retained by the employee, either those not
contributed to a tip pool or those received from the tip pool, are considered in determining if
the employee has received the minimum wage.

(f)

Tipped employees may not be required to share their tips with employees who are not
working in occupations in which they customarily and regularly receive tips. The following
employees would therefore not be eligible to participate in a mandatory tip pool:
(1)
(2)

Chefs or cooks (other than performance chefs)

(3)

Dishwashers

(4)

Laundry room attendants

(5)

(g)

Janitors

Salad preparers

LLC
7
der's er 1, 201
(6)
Prep cooks
n
b
exa
v. Al Septem
sh
rCongress,on in requiring as a general principle that tipped
However, it does not appearMa
that
d even
employees retain alled in
their tips, intended to prevent tipped employees from deciding, free from
hive
rc
cit and outside
any coercion whatever791, a of any formalized arrangement or as a condition of
5
employment, what 1 do with their tips, including sharing them with whichever co-workers
15- to
o.Therefore, a tipped employee may voluntarily share tips with whichever coN
they please.
workers the tipped employee chooses. Tips received by co-workers who are not tipped
employees may not, however, be used as a tip credit.

(h)

Tip jar
A tip jar is a form of tip pooling and should be handled in accordance with the tip pooling
provisions set forth above.

(i)

Questions from WHD field staff regarding eligibility of employees to share in tip pooling
arrangements that cannot be answered on the basis of these guidelines should be submitted
through channels to the NO, Division of Enforcement Policy and Procedures, Fair Labor
Standards Branch, for resolution. In the case of a host or hostess, head waiter, seater/greeter,
and other employees not referred to above, facts should be developed showing the practices
regarding their sharing of tips in the locality and type of establishment involved.

(j)

Remedying an invalid tip pool
(1)

If an employer includes ineligible employees in a mandatory tip pool, or the
employer retains tips from the pool, the tip pool is invalid. An employer may not
utilize a 3(m) tip credit for an employee who contributes tips to an invalid mandatory

CHAPTER 30 TABLE OF CONTENTS

Case: 15-15791, 09/06/2017, ID: 10569989, DktEntry: 97-2, Page 35 of 42

tip pool. The employer must pay such an employee the full minimum wage, and
must reimburse the employee in the amount of tips that were improperly utilized.
(2)

When an employee who is ineligible to share in tip pooling arrangements receives
funds from an employer-imposed, invalid tip pool, those monies are wages and must
be included in calculating the non-tipped employee’s regular rate of pay for purposes
of overtime compensation. See WHD Opinion Letter FLSA (October 26, 1989).

[12/15/2016]
30d05

Tips charged on credit cards.

(a)

When tips are charged to credit cards, the employer may reduce the amount of tips paid to the
employee by the percentage charged by the credit card company (i.e., transactional fee).
However, the employer cannot reduce the amount of tips paid to the employee by any amount
greater than the transactional fee. For example, where a credit card company charges an
employer 3 percent on all sales charged to its credit service, the employer may pay the
employee 97 percent of the tips without violating FLSA. See WHD Letter FLSA (March 28,
1977).

(b)

Payment of both minimum wage and overtime compensation, including the charged tips, due
a “tipped employee” must ordinarily be made at the regular payday for the workweek, or
when the pay period covers more than a single workweek, at the regular payday for the period
in which the particular workweek ends. The procedures's LLC to process charges made by
required
017
nder be funds by
customers through credit cards may delay actual receipt of the r 1, 2 the employer for one
exa
or two months. Nevertheless, the employerl is required to pay over the charged tips to the
v. A Septem
r h
employee on the employee’s nexts
d on
n Ma regular payday.

(c)

i
e
cited 1, archiv
In some situations, a 579 card transaction is not collected from a credit card company. In
1 credit
such cases, the employer is not required to pay a tipped employee the amount of tips specified
. 15No
on the credit card slip. Of course, this assumes the inability to collect is not a result of the

employer’s failure to submit the slip for reimbursement, etc. See WHD Opinion Letter FLSA
(February 23, 1983).
(d)

Where a credit card charge is uncollectible, the employer is not required to pay the employee
the amount of tip specified on such credit card slip. Instead, the employer may recover from
a tipped employee those tips that have been paid to the employee when the credit card charge
is uncollectible; however, such recovered tips may not reduce the tips retained by the
employee below the amount of the tip credit claimed in the workweek in which the credit
card tip was paid to the employee.
Where there are tip pools, tip pool recipients are responsible for reimbursing the employer for
the share of tips from an uncollected credit card transaction which was allocated into the tip
pool. The tipped employee who contributed the uncollected tip to the tip pool can only be
held accountable for the portion of the uncollected tip the employee received back from the
tip pool. For example, the tipped employee contributed $20.00 in tips from a credit card
transaction that ultimately is uncollected to the tip pool and received back from the tip pool
70 percent of the tips contributed to the pool. The tipped employee can only be required to
reimburse the employer for the 70 percent of the $20.00 of the uncollected tip that the
employee received from the tip pool ($20.00 × 0.70 = $14.00).

CHAPTER 30 TABLE OF CONTENTS

Case: 15-15791, 09/06/2017, ID: 10569989, DktEntry: 97-2, Page 36 of 42

(e)

Cost of collecting tips charged on credit cards, over and above the amount charged by
the credit card company
Costs incurred by the employer related to credit card use, other than the fee charged by a
credit card company for processing, may not be used to reduce the amount of the tips the
employer must distribute to the tipped employee. Such costs include, but are not limited to:
(1)

the “time value of credit card collections,”

(2)

the cost of the credit card terminal, and

(3)

the cost of dedicated phone lines.

Any employer attempt to deduct an average standard composite amount for tip liquidation
that exceeds the amount charged by the credit card companies is not acceptable.
WHD Opinion Letter FLSA 2006-1
[12/15/2016]
30d06
(a)

Determining the tip credit an employer may claim against its minimum wage
obligations.

LLC
7
der's er 1, 201
n
b
e a
Section 3(m) limits the tip credit an employer x claim against its minimum wage
v. Al may ptem
Se
rsh the section 6(a)(1) minimum wage and the cash wage
obligations to the differenceMa
between
on
paid by the employer.dUnder this formula, the direct or cash wage paid by the employer,
e in archived
cit than ,
which may not be less 791$2.13 per hour, plus the FLSA 3(m) tip credit (i.e., the difference
between the . 15-16(a)(1) wage and the cash wage paid) always equals the section 6(a)(1)
section 5
o Under the 3(m) formula, payment of a higher cash wage by the employer
N
minimum wage.

General

will result in a lower FLSA 3(m) tip credit. An employee paid with the FLSA 3(m) tip credit
has only been paid the FLSA minimum wage in non-overtime workweeks, and therefore the
employer may not take non-3(m) deductions for shortages, breakage, cost of uniforms, etc.
(b)

Examples
For purposes of these examples, assume: the section 6(a)(1) wage rate is $7.25 per hour, the
employee worked no overtime hours, the employee meets the section 3(t) definition of tipped
employee, the employer properly advised the employee in advance of the requirements
outlined in 29 CFR 531.59(b), and that the employer maintained appropriate payroll records.
(1)

These examples illustrate that the amount of the FLSA 3(m) tip credit will vary
depending on the cash or direct wage paid to the employee.
a.

If the employer pays a cash wage paid of $2.13 per hour, it may claim a tip
credit of $5.12 per hour ($7.25 - $2.13 = $5.12).

b.

If the employer pays a cash wage paid of $3.63 per hour, it may claim a tip
credit of $3.62 per hour ($7.25 - $3.63 = $3.62).

CHAPTER 30 TABLE OF CONTENTS

Case: 15-15791, 09/06/2017, ID: 10569989, DktEntry: 97-2, Page 37 of 42

c.
d.

(2)

If the employer pays a cash wage paid of $4.86 per hour, it may claim a tip
credit of $2.39 per hour ($7.25 - $4.86 = $2.39).
If the employer pays a cash wage of less than the minimum required by the
FLSA ($2.13 per hour), it may not claim an FLSA 3(m) tip credit and must
pay the difference between the minimum wage and the cash wage that was
paid. For example, if an employer pays a cash wage of $2.00 per hour, it
would not be entitled to claim an FLSA 3(m) tip credit and must also pay
$5.25 per hour as the difference between the minimum wage and the cash
wage paid ($7.25 - $2.00 = $5.25).

When the state minimum wage is higher than the section 6(a)(1) wage, the formula in
section 3(m) still limits the amount of the FLSA 3(m) tip credit the employer may
claim to the difference between the cash wage paid and the federal minimum wage.
As illustrated in the examples below, where the state recognizes a higher tip credit
than the FLSA 3(m) tip credit, there will not be a FLSA minimum wage violation as
long as the employer has paid a cash wage of at least $2.13 per hour and the
employee receives sufficient tips to satisfy the section 6(a)(1) minimum wage.
a.

No.

The state minimum wage is $7.40 per hour. The employer pays a cash wage
of $2.89 per hour as required by the state law and claims a tip credit of $4.51
per hour as permitted under state law ($7.40 - $2.89 = $4.51). However, the
LC
employer is limited to an FLSA 3(m) tips L of , 2017
der' creditr 1 $4.36 ($7.25 - $2.89 =
xan mbe
$4.36).
e
. Ale

1

v
pt
arsh d on Se
M
$7.25 (FLSA minimum wage) - $2.89 (cash wage paid) = $4.36 (FLSA 3(m)
e
ed in
citcredit 1, archiv
tip
79
5-15
$7.40 (state minimum wage) - $2.89 (cash wage paid) = $4.51 (state tip
credit)

Even though the employer has paid a direct wage in excess of the required
minimum of $2.13, for FLSA purposes the employee has received only $7.25
per hour.
b.

The state minimum wage is $8.15 per hour. The employer pays a cash wage
of $3.95 as required by state law and claims a tip credit of $4.20 per hour as
permitted under state law ($8.15 - $3.95 = $4.20). The employer is limited to
an FLSA 3(m) tip credit of $3.30 ($7.25 - $3.95 = $3.30).
$7.25 (FLSA minimum wage) - $3.95 (cash wage paid) = $3.30 (FLSA 3(m)
tip credit
$8.15 (state minimum wage) - $3.95 (cash wage paid) = $4.20 (state tip
credit)

CHAPTER 30 TABLE OF CONTENTS

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Even though the employer has paid a direct wage in excess of the required
minimum of $2.13, for FLSA purposes the employee has received only $7.25
per hour.
c.

The state minimum wage is $7.50 per hour, and the state requires a cash
wage of at least $2.13 per hour. The employer claims a tip credit of $5.37
per hour ($7.50 - $2.13 = $5.37) as permitted under state law. The employer
is limited to an FLSA 3(m) tip credit of $5.12 ($7.25 - $2.13 = $5.12).
$7.25 (FLSA minimum wage) - $2.13 (cash wage paid) = $5.12 (FLSA 3(m)
tip credit)
$7.50 (state minimum wage) - $2.13 (cash wage paid) = $5.37 (state tip
credit)
For FLSA purposes, the employee has received only $7.25 per hour.

[12/15/2016]
30d07

FLSA 3(m) tip credit in overtime hours.
An employer may not take a higher FLSA 3(m) tip credit against its minimum wage
obligations during overtime hours than is taken during non-overtime hours. See FOH 32j18
LLC 2 7
der's ercertain01
regarding overtime computations for tipped employees. Under 1,
circumstances, an
xan tip credit
employer may be able to claim an additionale
. Al overtimetemb against its overtime
ep
hv
obligations.
on S
Mars

[12/15/2016]

in
ed
cited 1, archiv
1579
. 15-

30d08

o

IRS tip N
allocation rules.

Where an employer withholds taxes from a tipped employee based upon a percentage of
sales, rather than on reported tips, a reduction in an individual employee’s net pay may result,
but this is not an FLSA violation.
[12/15/2016]
30e

FLSA SECTION 6(e)(1): CONTRACT SERVICES OTHER THAN LINEN SUPPLY

30e00

General provisions: section 6(e)(1), contract services (other than linen supply services).
Section 6(e)(1) of the FLSA provides: “Notwithstanding the provisions of section 13 of this
act (except subsections (a)(1) and (f) thereof), every employer providing any contract services
(other than linen supply services) under a contract with the United States or any subcontract
thereunder shall pay to each of his employees whose rate of pay is not governed by the
Service Contract Act of 1965 (41 USC 351-357) or to whom subsection (a)(1) of this section
is not applicable, wages at rates not less than the rates provided for in subsection (b) of this
section.” (Effective 12/31/1977, subsection (b) provided for payment of wage rates not less
than those provided in subsection (a)(1).)

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Case: 15-15791, 09/06/2017, ID: 10569989, DktEntry: 97-2, Page 39 of 42

30e01

Application of section 6(e)(1): establishment basis.
As an enforcement policy, the minimum wage standard provided by section 6(e)(1) of the
FLSA will be applied only within an establishment in which work is performed on a
government service contract. Thus, where an employer operated more than one
establishment but performs on government service contracts in only certain of these
establishments, the WHD will not assert application of section 6(e)(1) to those establishments
which do not perform on government service contracts.

30e02

Application of section 6(e)(1): workweek basis.
The application of section 6(e)(1) of the FLSA depends on the performance of contract
services and not on the coverage or exemption status of the establishment under the act.
Thus, during any workweek in which the establishment is engaged in the performance of
contract services, the wage rate provided in section 6(b) of the FLSA would be applicable to
all employees of the establishment other than those specifically exempt under section
13(a)(1) of the FLSA or those subject to a higher wage rate pursuant to the SCA.

30e03

Application of section 6(e)(1): contract services.
Section 6(e)(1) of the FLSA applies to every employer providing any contract service (other
than linen supply services) under a contract with the United States or any subcontractor
thereunder. It is not necessary that the contract be subject to the SCA.

30e04

LLC
7
der's er 1, 201
Overtime and section 6(e)(1).
n
b
exa
v. Al Septem
rsh no reference to overtime standards and section 7 makes
Section 6(e)(1) of the FLSAMa
n containsved on
i
no provision for cited i for employees covered by section 6(e). Overtime compensation for
overtime
arch
employees covered on 791,
a traditional or enterprise basis may be required under section 7(a) of
- 5
the FLSA or.under 1 CWHSSA.
o 15 the
N

30f

FLSA SECTION 6(e)(2): GOVERNMENT CONTRACT LINEN SUPPLY SERVICES

30f00

General provision: section 6(e)(2), government contract linen supply services.
Section 6(e)(2) of the FLSA provides: “Notwithstanding the provisions of section 13 of this
act (except subsections (a)(1) and (f) thereof) and the provisions of the Service Contract Act
of 1965, every employer in an establishment providing linen supply services to the United
States under a contract with the United States or any subcontract thereunder shall pay to each
of his employees in such establishment wages at rates not less than those prescribed in
subsection (b), except that if more than 50 per centum of the gross annual dollar volume of
sales made or business done by such establishment is derived from providing such linen
supply services under any such contracts or subcontracts, such employer shall pay to each of
his employees in such establishment wages at rates not less than those prescribed in
subsection (a)(1) of this section.” (Effective 12/31/1977, subsection (b) provided for
payment of wage rates not less than those provided in subsection (a)(1).)

30f01

Linen supply services.

CHAPTER 30 TABLE OF CONTENTS

Case: 15-15791, 09/06/2017, ID: 10569989, DktEntry: 97-2, Page 40 of 42

(a)

The application of section 6(e)(2) of the FLSA is determined by the type of service contracted
for and not by the type of establishment performing the service. Thus, for example, a laundry
may provide linen supply service within the meaning of section 6(e)(2).

(b)

The term linen supply services as used in section 6(e)(2) of the FLSA refers to the supplying
of various items to the government on a rental basis by a contractor who owns the item being
supplied. On the other hand, the mere laundering of items which are owned by the
government is a laundering service and is not a linen supply service within the meaning of
section 6(e)(2).

(c)

The term “linen supply services,” in addition to including such services as the rental of
tablecloths, sheets, and pillowcases, would also include contracts for such items as dresses,
uniforms, other wearing apparel, bibs aprons, etc., of the type used by barbers, doctors,
waitresses, waiters, nurses, food workers, beauticians, etc. It would not include services for
such items as diapers, laundry, or dry cleaning (family or commercial), nor services for such
items as industrial wiping towels, safety equipment and salvage, dust control – including
treated dust tool covers and cloths, treated dust mops or rugs, or for industrial work uniforms,
such as those worn by mechanics and production workers in heavy industry, machine shops,
garages, service stations, and the like.

30f02

Application of section 6(e)(2): establishment basis.
The minimum wage standard provided by section 6(e)(2) of the FLSA applies only within an
LLC
establishment in which work is performed on a government linen supply contract. Thus,
17
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where an employer operates more than one establishment
performs
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supply contracts in only certain of thev. A
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30f03

91,
1576(e)(2): workweek basis.
15Application.of section
No

The application of section 6(e)(2) of the FLSA depends on the performance of linen supply
services to the government and not on the coverage or exemption status of the establishment
under the Act. Thus, during any workweek in which the establishment is engaged in the
performance of linen supply services, the wage rate provided in section 6(b) of the FLSA
would be applicable to all employees of the establishment other than those specifically
exempt under section 13(a)(1) of the FLSA or those subject to a higher wage rate pursuant to
the SCA.
30f04

Application of section 6(e)(2): linen supply services.
Section 6(e)(2) of the FLSA applies to every employer providing linen supply services under
a contract with the United States or any subcontract thereunder. It is not necessary that the
contract be subject to the SCA.

30f05

Overtime and section 6(e)(2).
Section 6(e)(2) of the FLSA contains no reference to overtime standards and section 7 makes
no provision for overtime for employees covered by section 6(e). Overtime compensation for
employees covered on a traditional or enterprise basis may be required under section 7(a) of
the FLSA or under the CWHSSA.

CHAPTER 30 TABLE OF CONTENTS

Fact Sheet - Wage and Hour Division (WHD) - U.S. Department of Labor

Case: 15-15791, 09/06/2017, ID: 10569989, DktEntry: 97-2, Page 41 of 42
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(Revised December 2016) (PDF)

Fact Sheet #15: Tipped Employees Under the Fair Labor Standards Act (FLSA)
This fact sheet provides general information concerning the application of the FLSA to employees who receive tips.
Characteristics
Tipped employees are those who customarily and regularly receive more than $30 per month in tips. Tips are the property of the
employee. The employer is prohibited from using an employee’s tips for any reason other than as a credit against its minimum
wage obligation to the employee (“tip credit”) or in furtherance of a valid tip pool. Only tips actually received by the employee may
be counted in determining whether the employee is a tipped employee and in applying the tip credit.
Tip Credit: Section 3(m) of the FLSA permits an employer to take a tip credit toward its minimum wage obligation for tipped
employees equal to the difference between the required cash wage (which must be at least $2.13) and the federal minimum wage.
Thus, the maximum tip credit that an employer can currently claim under the FLSA section 3(m) is $5.12 per hour (the minimum
wage of $7.25 minus the minimum required cash wage of $2.13). Under certain circumstances, an employer may be able to claim
an additional overtime tip credit against its overtime obligations.
Tip Pool: The requirement that an employee must retain all tips does not preclude a valid tip pooling or sharing arrangement
among employees who customarily and regularly receive tips, such as waiters, waitresses, bellhops, counter personnel (who serve
customers), bussers, and service bartenders. A valid tip pool may not include employees who do not customarily and regularly
received tips, such as dishwashers, cooks, chefs, and janitors.
Requirements
The employer must provide the following information to a tipped employee before the employer may use the FLSA 3(m) tip credit:

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, exceed
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2) the additional amount claimed by the employer as ntip credit, er 1
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minimum required cash wage of $2.13 andA current
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s employer cannot ept
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3) that the tip credit claimed by
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4) that all tips
arrangement limited to employees who customarily and regularly receive tips; and
791
5-15 will not apply to any tipped employee unless the employee has been informed of these tip credit
1
5) that the tip credit
No.
provisions.
1) the amount of cash wage the employer is paying a tipped employee, which must be at least $2.13 per hour;

The employer may provide oral or written notice to its tipped employees informing them of items 1-5 above. An employer who fails
to provide the required information cannot use the section 3(m) tip credit and therefore must pay the tipped employee at least
$7.25 per hour in wages and allow the tipped employee to keep all tips received.
Employers electing to use the tip credit provision must be able to show that tipped employees receive at least the minimum wage
when direct (or cash) wages and the tip credit amount are combined. If an employee's tips combined with the employer's direct
(or cash) wages of at least $2.13 per hour do not equal the minimum hourly wage of $7.25 per hour, the employer must make up
the difference.
Retention of Tips: A tip is the sole property of the tipped employee regardless of whether the employer takes a tip credit. [1] The
FLSA prohibits any arrangement between the employer and the tipped employee whereby any part of the tip received becomes the
property of the employer. For example, even where a tipped employee receives at least $7.25 per hour in wages directly from the
employer, the employee may not be required to turn over his or her tips to the employer.
Tip Pooling: As noted above, the requirement that an employee must retain all tips does not preclude a valid tip pooling or sharing
arrangement among employees who customarily and regularly receive tips. The FLSA does not impose a maximum contribution
amount or percentage on valid mandatory tip pools. The employer, however, must notify tipped employees of any required tip
pool contribution amount, may only take a tip credit for the amount of tips each tipped employee ultimately receives, and may not
retain any of the employees' tips for any other purpose.
Dual Jobs: When an employee is employed by one employer in both a tipped and a non-tipped occupation, such as an employee
employed both as a maintenance person and a waitperson, the tip credit is available only for the hours spent by the employee in
the tipped occupation. The FLSA permits an employer to take the tip credit for some time that the tipped employee spends in
duties related to the tipped occupation, even though such duties are not by themselves directed toward producing tips. For
example, a waitperson who spends some time cleaning and setting tables, making coffee, and occasionally washing dishes or
glasses is considered to be engaged in a tipped occupation even though these duties are not tip producing. However, where a
tipped employee spends a substantial amount of time (in excess of 20 percent in the workweek) performing related duties, no tip
credit may be taken for the time spent in such duties. .
Service Charges: A compulsory charge for service, for example, 15 percent of the bill, is not a tip. Such charges are part of the
employer's gross receipts. Sums distributed to employees from service charges cannot be counted as tips received, but may be
used to satisfy the employer's minimum wage and overtime obligations under the FLSA. If an employee receives tips in addition to
the compulsory service charge, those tips may be considered in determining whether the employee is a tipped employee and in

https://www.dol.gov/whd/regs/compliance/whdfs15.htm[9/1/2017 10:43:50 AM]

Fact Sheet - Wage and Hour Division (WHD) - U.S. Department of Labor

Case: 15-15791, 09/06/2017, ID: 10569989, DktEntry: 97-2, Page 42 of 42
the application of the tip credit.

Credit Cards: Where tips are charged on a credit card and the employer must pay the credit card company a percentage on each
sale, the employer may pay the employee the tip, less that percentage. For example, where a credit card company charges an
employer 3 percent on all sales charged to its credit service, the employer may pay the tipped employee 97 percent of the tips
without violating the FLSA. However, this charge on the tip may not reduce the employee's wage below the required minimum
wage. The amount due the employee must be paid no later than the regular pay day and may not be held while the employer is
awaiting reimbursement from the credit card company.
Youth Minimum Wage: The 1996 Amendments to the FLSA allow employers to pay a youth minimum wage of not less than $4.25
per hour to employees who are under 20 years of age during the first 90 consecutive calendar days after initial employment by
their employer. The law contains certain protections for employees that prohibit employers from displacing any employee in order
to hire someone at the youth minimum wage.
Typical Problems
Minimum Wage Problems:
Where an employee does not receive sufficient tips to make up the difference between the direct (or cash) wage payment
(which must be at least $2.13 per hour) and the minimum wage, the employer must make up the difference.
Where an employee receives tips only and is paid no cash wage, the full minimum wage is owed.
Where deductions for walk-outs, breakage, or cash register shortages reduce the employee’s wages below the minimum wage,
such deductions are illegal. When an employer claims an FLSA 3(m) tip credit, the tipped employee is considered to have been
paid only the minimum wage for all non-overtime hours worked in a tipped occupation and the employer may not take
deductions for walkouts, cash register shortages, breakage, cost of uniforms, etc., because any such deduction would reduce
the tipped employee’s wages below the minimum wage.
Where a tipped employee is required to contribute to a tip pool that includes employees who do not customarily and regularly
receive tips, the employee is owed the full $7.25 minimum wage and reimbursement of the amount of tips that were improperly
utilized by the employer.
Overtime Problems:
Where the employer takes the tip credit, overtime is calculated on the full minimum wage, not the lower direct (or cash) wage
payment. The employer may not take a larger FLSA 3(m) tip credit for an overtime hour than for a straight time hour. Under
certain circumstances, an employer may be able to claim an additional overtime tip credit against its overtime obligations.
Where overtime is not paid based on the regular rate including all service charges, commissions, bonuses, and other
remuneration.

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Where to Obtain Additional Information
v. Al Septem
h
rsWage andon Division Website: http://www.wagehour.dol.gov and/or call
For additional information, visita
Hour
M our
our toll-free information iand helpline, iavailable 8 a.m. to 5 p.m. in your time zone, 1-866-4USWAGE (1-866-487ed n arch ved
9243).
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91,
This publication is for157 information and is not to be considered in the same light as official statements of position contained
general
15in the regulations.
No.
[1] WHD will not enforce the Department’s regulations on the retention of employees’ tips with respect to any employee who is
paid a cash wage of not less than the full Fair Labor Standards Act (FLSA) minimum wage ($7.25) and for whom their employer
does not take an FLSA section 3(m) tip credit.

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https://www.dol.gov/whd/regs/compliance/whdfs15.htm[9/1/2017 10:43:50 AM]