FLSA laws and common employers
1) Concurrent Employment
This is any situation whereby an employee of one client also does work, in the same pay periods, for a second client and there is a connection between the two clients – either through related activities, common ownership or common management.
2) A Mixing of Exempt and Non-Exempt employment
The term “Exempt” means that an employee is exempt from overtime rules under the Fair Labor Standards Act (FLSA). An employee may be exempt for a number of reasons. In this situation we are dealing with an employee who is exempt as an executive or who works as part of management.
A mixing occurs when an exempt employee also does work, for the same client or group of related clients, that is not exempt.
“Management” exempt qualification requires the following: a) the employee is compensated at least $455/wk., b) the primary duty is management, c) the employee must direct the work of two or more other employees, d) there must be authority to influence hiring other employees, firing employees, promoting or other change of status.
The specific issues are as follows:
A) A supervisor/manager works at one location and receives a small, token salary. This same individual also works at a second, commonly owned, location also as a manager.
Compensation paid to this manager includes commissions from certain revenues generated, a bonus for showing up on time, and income from tips/surcharges that are non-discretionary from customers.
The question is: Is the employee in this situation exempt from any overtime – in either or both locations?
The answer has multiple issues and each issue must also be analyzed in sequence:
i) If the employee is qualified as exempt, as an “executive”, pursuant under 29 CFR section 541.100 there is no overtime required to be paid. The employee, if also earning income from tips/surcharges, appears to be also performing non-exempt work.
The basic test, when there is a mixing of exempt and non-exempt work, is the primary duty test. What is the primary duty of this employee? The factors that must be considered to make this determination include the principal duties performed, the amount of time spent on each of these different work areas, and the compensation for salary vs. compensation from other, non-exempt work. The entire relationship must be considered and all factors must be weighed. If, based on all factors, the overall job is management then there is no overtime required.
ii) There is also an exemption for non-executive employees who are paid with commissions. For this exemption to be applicable the employee must earn a majority of his/her compensation from commissions and any overtime, paid via commissions, must be at an amount greater than one-and-a-half times the minimum wage rate.
B) An employee works at one location as a manager and works, at this location, 25 to 40 hours per week. This manager, in the course of the job, receives direct tips from customers. This manager also works separately as a bartender/host at a second location with common ownership to the first location. The manager (as a bartender/host) works 20 to 23 hours per week at this second location.
Other relevant factors include:
i) The manager is required to punch in at both locations
ii) The manager receives bonuses and direct tips in addition to a salary.
The question(s) include:
a) Is there any overtime required to be paid?
b) Can the salary/compensation be reduced using a tip credit against minimum wage?
Note: There are two sets of overlapping regulations from the FLSA laws that govern these types of situations:
a) 29 CFR 541 that defines exempt and non-exempt employment and concurrent employment.
b) 29 CFR 791 and 825 that defines “employer” and “joint employment”.
The answers to these questions are:
i) These locations are clearly included as related activities and under common control. This manager is defined under rules for joint employment, thus the manager is deemed to be working for one employer per FLSA laws. Is any or all of the employment exempt for FLSA overtime rules?
The result will be determined by the primary duty of the employee. Secondly, are the two jobs “closely related” and thus all packaged together as one job?
As such the question breaks down to: a) What is the primary duty of the employee? b) Is the work as a bartender “closely related” to the work as a manager? Would the work be considered partially or fully exempt? If the primary duty is qualified as managerial, and is thus exempt, and the two jobs are closely related, the manager is exempt overall from overtime rules.
The determining factors include the amount of time spent on each job and the specific facts and circumstances of the work. Substance over form will dictate the result.
ii) If the work is not closely related and the work as a manager does qualify as exempt, the work as a bartender would then be non-exempt and subject to FLSA overtime laws. If the overall situation is that the employee is not qualified as exempt then the entire time spent on both jobs would be subject to overtime rules.
iii) The job as a bartender apparently is not “directly and closely related” to the exempt management work. As such the bartending does not qualify as exempt.
The issue is: Are these two separate and distinct employments for FLSA purposes or must the two be combined and an overall determination made as to whether the employee is exempt or non-exempt for overtime purposes? There is no clear definition, on-point, describing this exact situation.
There is an FLSA Opinion published from 9/8/06 (FLSA2006-29) on page 4 that states:
“It continues to be the Department’s position that substantial nonexempt work cannot routinely be assigned to exempt employees without calling into question application of the exemption to that employee”.
The overall result is that the bartending is not exempt and managerial apparently is exempt. This is a marginal situation.
iv) Tip credits: The manager is earning tips directly from customers from both jobs. This should not result in a wage reduction via a tip credit as a manager. As a manager the employee should be earning a compensation well in excess of minimum wage. As a bartender there could be a tip credit – if the two jobs are in fact separate and distinct. The fact that there are tips earned from both jobs is a strong indication that this may not be a qualified exempt position. The overall substance is that of a server and host, and not a manager.