Under the new regulations, employers can claim a tip credit of $5.12, up from $4.42 an hour.  Employers must notify employees about the implementation of a tip credit.  The notice may be verbal, and must contain the following information:

The wages the employee is being paid, which cannot be less than $2.13 per hour;

1. The amount the employer is claiming as the tip credit;
2. A statement that the tip credit will not exceed the tips being received by the employee;
3. A statement that the tip credit cannot be applied to an employee without the employee having been educated abut the tip credit provisions of the FLSA; and
4. All tips received by the employee may be kept by the employee unless they are part of a valid pooling of tips.

An employer is prohibited from using employee wages for any purpose other than as a tip credit.  If an employee does not receive the notification, the tip credit will not apply.

Alaska, California, Guam, Minnesota, Montana, Nevada, Oregon and Washington do not allow tip credits.  Employees who are subject to both federal and state law are entitled to the more favorable provisions.

Employers would be required to provide written notice to those employees they have identified as independent contractors, which includes 1) their classification; 2) the Department of Labor (DOL)’s website established for providing additional information about employees’ rights; 3) address and telephone of their local DOL office; and 4) any additional information as required.

The EMPA would ensure that employers keep accurate records classifying each worker accordingly, and would increase penalties for noncompliance.  It would also provide protections to workers who are discriminated against because they have asked to be accurately classified.  For any infraction, employers could be fined up to $1,100 per day per employee, up to $5,000 per employee per day for repeated violations, and liquidated damages.

Lastly, the EMPA would enhance state and federal efforts to combat misclassification by mandating DOL-monitored state audits, increasing state penalties, providing a mechanism for the DOL and Internal Revenue Service to refer incidents between each other, and directing the DOL to perform audits on “frequent offender” industries.

In addition to the federal proposed legislation, many states, including New York, New Jersey, Connecticut, Nebraska and Ohio are strengthening state legislation on their own.

The DOL has received an 18% budget increase for 2010. 

In addition, the IRS has instituted what they call “the National Research Program on employment tax compliance has focused their efforts on improper worker classification as well as “non-conforming benefits.”  These are benefits that could be considered wages and therefore subject to employment taxes, i.e. personal use of company vehicles, employee discounts, educational assistance, etc. 

The IRS will be looking at tax records for 2007 and 2008.

The class of employees being scrutinized are stockbrokers, financial analysts, traders and similar positions.  The issue is that they are being incorrectly classified as exempt under the administrative and/or highly compensated exemptions.

Under the FLSA, an employee is exempt under the administrative exemption if they are compensated at a rate not less than $455 per week, performs work directly related to the management or operations of the business, and exercises discretion and independent judgment.

A common mistake employers make is with the definition of the highly compensated exemption.  To qualify this exemption an employee’s compensation must be $100,000 or more.  Employers often think this means total compensation, so this would include discretionary bonuses, commissions, etc.  In reality, the compensation must be guaranteed compensation, so these other types of income would not qualify under the highly compensated exemption.

Employers who hire these types of workers should review their compensation structure and job duties, and make adjustment accordingly.

For more information, see FLSA Fact Sheet #17A,

Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA), at http://www.dol.gov/esa/whd/regs/compliance/fairpay/fs17a_overview.pdf.