The Fair Labor Standards Act requires covered employers to pay minimum wages and overtime compensation to certain categories of employees. These requirements involve a determination as to the employee’s regular or overtime hourly rate of pay. As explained below, FLSA regulations provide that, generally speaking, fees, expenses or other charges that the employer requires the employee to pay directly or indirectly to the employer or to another person for the employer’s benefit should be deducted from the employee’s wages when determining whether the employer has met the FLSA’s minimum wage and overtime wage requirements.
The FLSA generally requires covered employers to pay non-exempt employees at least the required minimum hourly wage. 29 U.S.C. § 206. The FLSA further generally requires covered employers to pay non-exempt employees overtime wages for hours worked over 40 in a workweek at a rate not less than one and one-half times the regular rate at which the employee is employed. 29 U.S.C. § 207.
In certain occupations, employers may impose fees on employees for their employment, or charge employees for equipment or uniforms, or require employees to pay for their own tools or equipment to be used in the performance of their work. These kinds of employer requirements, which effectively impose on employees a fee or cost for being employed, raise questions as to whether the employer is complying with the FLSA when the fees or costs cut into the required minimum or overtime wages.
FLSA Wage Requirements Are Not Met Unless the Employee Receives the Wages “Finally and Unconditionally” or “Free and Clear”
The FLSA’s “free and clear” regulation provides that “wages” for purposes of the FLSA cannot be considered to have been paid by the employer and received by the employee unless they are paid “finally and unconditionally” or “free and clear”:
Whether in cash or in facilities, “wages” cannot be considered to have been paid by the employer and received by the employee unless they are paid finally and unconditionally or “free and clear.” The wage requirements of the Act will not be met where the employee “kicks-back” directly or indirectly to the employer or to another person for the employer’s benefit the whole or part of the wage delivered to the employee. This is true whether the “kick-back” is made in cash or in other than cash. For example, if it is a requirement of the employer that the employee must provide tools of the trade which will be used in or are specifically required for the performance of the employer’s particular work, there would be a violation of the Act in any workweek when the cost of such tools purchased by the employee cuts into the minimum or overtime wages required to be paid him under the Act. See also in this connection, § 531.32(c).
29 C.F.R. § 531.35. Therefore, the FLSA’s minimum wage and overtime wage requirements are not met where the employee has to return, or “kick-back”, directly or indirectly to the employer or another person for the employer’s benefit the whole or part of the wages delivered to the employee. Accordingly, employer-imposed charges, fees to work, or requirements that employees pay for their own equipment, may result in a violation of the FLSA when the kick-backs cut into the minimum wages or overtime wages required under the FLSA, when the charges are for the employer’s benefit.
Example: Employer Requires Employee to Purchase Equipment for the Employee’s Work
Consistent with this regulation, in order to determine whether an employee has received the required minimum and overtime wages “free and clear”, expenses or other charges that the employer requires the employee to pay directly or indirectly to the employer or to another person for the employer’s benefit should generally be deducted from the employees’ wages when determining whether the employer has met the FLSA’s minimum wage and overtime wage requirements. Take, for example, an employee who is paid $10 per hour, works 40 in a given week, and is required by his employer to purchase a $400 machine to be used in the employee’s work for the employer. The employer pays the employee $400 (which would be more than the federal minimum wage for the week), but due to the $400 charge for the machine, the employee has not received the minimum wage “free and clear.” Rather, she has actually received $0, and the FLSA’s minimum wage requirements have not been met.
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