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Bulletin #365 What Should I Worry About? The most obvious effect of the law is to increase the minimum wage to $6.15 an hour, effective January 1, 2007. Although most employers are already paying that much or more, employers in the restaurant industry should be aware that the law will have an effect on tipped employees. Under the FLSA, which currently controls in North Carolina, employers may take a “tip credit” of $3.02 an hour toward the minimum wage requirements of tipped employees, assuming various conditions are met. This results in a cash minimum wage rate (the hourly wage that employers must actually pay tipped employees) of $2.13 ($5.15 minus $3.02). The North Carolina Wage and Hour Act adopts the FLSA “tip credit” rather than the resulting cash minimum wage rate. Therefore, effective January 1, 2007, the FLSA tip credit of $3.02 will be subtracted from the new North Carolina minimum wage of $6.15, resulting in a $1 an hour increase (to $3.13) in the hourly wage that employers must pay their tipped employees. Constangy has spoken with the North Carolina Department of Labor and the North Carolina Restaurant Association about this. Based on those discussions, it appears that the increase may have been an unintended consequence of the new law and that measures may be taken before January 1 to maintain the status quo. Finally, the NCWHA exempts most employees covered by the FLSA as long as the FLSA minimum wage is not lower than the state minimum wage. Now that the North Carolina minimum will be higher than the FLSA minimum, that exemption will no longer apply. Thus, employers who previously focused only on the minimum wage requirements of the FLSA will be subject to the other nuances of the North Carolina minimum wage laws. Will This Law Affect My Overtime Obligations? Theoretically, yes, but as a practical matter, probably not much. Technically, employers will now be subject to the NCWHA, rather than the FLSA, overtime provisions; however, there are not many significant differences. Both the North Carolina law and the FLSA provide for the payment of time-and-one-half of the employee’s regular rate of pay for all hours worked in excess of 40 hours in a workweek. Furthermore, although the North Carolina and FLSA exemptions from overtime requirements are not identical, employers were already required to pay overtime to North Carolina employees who may have been exempt under the FLSA but not under the state law. Finally, the North Carolina Department of Labor has regularly relied on FLSA interpretations when enforcing its own minimum wage and overtime requirements. Where Do We Go From Here? If the U.S. Congress increases the federal minimum wage to $6.15 or more before January 1, 2007, then everything except the applicable minimum wage would return to the status quo. In other words, the FLSA minimum wage and overtime provisions would again override the NCWHA provisions. But in an election year it is difficult to predict with any certainty whether that will happen. Where Do I Go for More Information? To see the new bill, click here. To see the full NCWHA and administrative regulations, click here. To see the list of employees who are exempt under the FLSA but not under the NCWHA, click here and go to pdf page 35 or “actual” page 29. (The new law will not affect the employer’s overtime obligation to such employees in any way.) And, of course, if you have questions or need assistance in complying with the new law, or with the North Carolina Wage and Hour Act in general or the Fair Labor Standards Act, please do not hesitate to contact the Constangy attorney of your choice.
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