803 KAR 1:080.
Board, lodging, gratuities and other allowances.
RELATES TO: KRS
337.275, 337.285
STATUTORY AUTHORITY:
KRS 337.295
NECESSITY, FUNCTION,
AND CONFORMITY: The statutory definition for "wages" when used in the
Act includes any compensation due to an employee by reason of his employment,
payable in legal tender of the United States or checks on banks convertible
into cash on demand at full face value, subject to such allowances made in the
Act. KRS 337.295 authorizes the executive director to promulgate administrative
regulations permitting allowances as part of the wage rates applicable under
the statutes for board, lodging, gratuities, and other facilities. The function
of this administrative regulation is to set forth what allowances may be credited
toward the payment of wages as required by the Act.
Section 1. Board,
Lodging, and Other Facilities. (1) An employer may be permitted to include as
wages paid to an employee, as required by KRS 337.275 and 337.285, the
reasonable cost of furnishing an employee with board, lodging, or other
facilities if such are customarily furnished by such employer to his employees.
Reasonable cost shall not include a profit to the employer or to any affiliated
person. This section does not prohibit payment of wages in facilities furnished
either as additions to a stipulated wage or as items for which deductions from
the stipulated wage will be made. 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. Not only must the employee receive
the benefits of the facility for which he is charged, but it is essential that
his acceptance of the facility be voluntary and uncoerced.
(2) Customarily
furnished. 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. Where such facilities are furnished to the employee,
it will be considered a sufficient satisfaction of this requirement if the
facilities are furnished regularly by the employer to his 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.
(3) Other
facilities.
(a) Other
facilities, as used in this administrative regulation, must be something like
board or lodging. The following items are deemed to be within the meaning of
the term: meals furnished at company restaurants or cafeterias or by hospitals,
hotels, or restaurants to their employees; meals, dormitory rooms, and tuition
furnished by a college to its student employees; housing furnished for dwelling
purposes; general merchandise furnished at company stores and commissaries
(including articles of food, clothing, and household effects), fuel,
electricity, water, and gas furnished for the noncommercial personal use of the
employee; transportation furnished employees between their house and work where
the travel time does not constitute hours worked and the transportation is not
an incident of and necessary to the employment.
(b) The cost of
furnishing facilities which are primarily for the benefit or convenience of the
employer will not be recognized as reasonable and may not therefore be included
in computing wages. The following examples of facilities to be primarily for
the benefit or convenience of the employer is meant as illustrative rather than
exclusive: tools of the trade and other materials and services incidental to
carrying on the employer's business; the cost of any construction by or for the
employer; the cost of uniforms and of their laundering, where the nature of the
business requires the employees to wear a uniform.
(4) Free and clear
payment; kickbacks. 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 kickback is made in cash or in other than cash. For example, if it
is a requirement of the employer that the employee must provide a uniform which
will be used in, or is 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 furnishing and maintaining the uniform by the
employee cuts into the minimum or overtime wages required to be paid him under
the Act.
(5) Nonovertime
workweeks. When no overtime is worked by the employee, this administrative
regulation will apply only to the applicable minimum wage for all hours worked.
To illustrate, where an employee works forty (40) hours a week at a cash wage
rate of one (1) dollar and sixty (60) cents an hour in a situation when that
rate is the applicable minimum wage and is paid sixty-four (64) dollars in cash
free and clear at the end of the workweek, and in addition is furnished
facilities valued at four (4) dollars, no consideration need be given to the
question of whether such facilities meet the requirements of this administrative
regulation, since the employee has received in cash the applicable minimum wage
for all hours worked. Similarly where an employee is employed at a rate of one
(1) dollar and eighty (80) cents an hour and during a particular workweek works
forty (40) hours for which he is paid sixty-four (64) dollars in cash, the
employer having deducted eight (8) dollars from his wages for facilities
furnished, whether such deduction meets the requirements of this administrative
regulation need not be considered, since the employee is still receiving, after
the deduction has been made, a cash wage of the applicable minimum wage.
Deductions for board, lodging, or other facilities may be made in nonovertime
workweeks even if they reduce the cash wage below the applicable minimum,
provided the prices charged do not exceed the reasonable cost of such
facilities. When such items are furnished the employee at a profit, the
deductions from wages in weeks in which no overtime is worked are considered to
be illegal only to the extent that the profit reduces the wage below the
required minimum. Deductions for articles which do not constitute board,
lodging, or other facilities may likewise be made in nonovertime workweeks if
the employee receives the required minimum wage in cash free and clear; but to
the extent that they reduce the wages of the employee in any such workweek
below the minimum required by the statute, they are illegal.
(6) Overtime
workweeks.
(a) KRS 337.285
requires that the employee receive compensation for overtime hours at a rate of
not less than one and one-half (1 1/2) times the rate at which he is employed.
When overtime is worked by an employee who receives the whole or part of his
wage in facilities and it becomes necessary to determine the portion of his
wages represented by facilities, all such facilities must be measured by the
requirements of this administrative regulation. Deductions may be made,
however, on the same basis in an overtime workweek as in nonovertime workweeks,
if their purpose and effect are not to evade the overtime requirements of KRS
337.285; provided, the amount deducted does not exceed the amount which could
be deducted if the employee had only worked the maximum number of straight-time
hours during the workweek. For example, in a situation where one (1) dollar and
sixty (60) cents is the applicable minimum wage, if an employee is employed at
a rate of one (1) dollar and sixty-five (65) cents an hour (five (5) cents in
excess of the minimum wage) the maximum amount which may be deducted from his
wages in a forty (40) hour workweek which are not facilities within the meaning
of this administrative regulation, is forty (40) times five (5) cents or two
(2) dollars. Deductions in excess of this amount for such items are illegal in
overtime workweeks as well as in nonovertime workweeks. There is no limit on
the amount which may be deducted for board, lodging, or other facilities in
overtime workweeks (as in workweeks when no overtime is worked), provided that
these deductions are made only for the reasonable cost of the items furnished.
When such items are furnished at a profit, the amount of the profit (plus the
full amount of any deductions for items which are not facilities) may not
exceed two (2) dollars in the example heretofore used in this paragraph.
(b) Where deductions
are made from the stipulated wage of an employee, the regular rate of pay is
arrived at on the basis of the stipulated wage before any deductions have been
made. Where board, lodging, or other facilities are customarily furnished as
addition to a cash wage, the reasonable cost of the facilities to the employer
must be considered as part of the employee's regular rate of pay. Thus, suppose
an employee employed at a cash rate of two (2) dollars an hour, whose maximum nonovertime
workweek under KRS 337.285 is forty (40) hours, works forty-four (44) hours
during a particular workweek. If, in addition, he is furnished board, lodging,
or other facilities valued at sixteen (16) dollars, but whose reasonable cost
is eleven (11) dollars, the eleven (11) dollars must be added to his cash
straight-time pay of eighty-eight (88) dollars in determining the regular rate
of pay on which his overtime compensation is to be calculated. The regular rate
then becomes two (2) dollars and twenty-five (25) cents an hour. The employee
is thus entitled to receive a total of $103.50 for the week. In addition to the
straight-time pay of eighty-eight (88) dollars in cash and eleven (11) dollars
in facilities, extra compensation of four (4) dollars and fifty (50) cents in
cash for the four (4) overtime hours must, therefore, be paid by the employer.
Section 2. Payment
Made to Person Other than Employee. (1) Amounts deducted for taxes. Taxes which
are assessed against the employee and which are collected by the employer and
forwarded to the appropriate governmental agency may be included as wages. This
principle is applicable to the employee's share of Social Security, as well as
other federal, state, or local taxes. No deduction may be made for any tax or
share of a tax which the law requires to be borne by the employer.
(2) Payments to
third persons pursuant to court order. Where an employer is legally obliged, as
by order of a court of competent and appropriate jurisdiction, to pay a sum for
the benefit or credit of the employee to a creditor of the employee, trustee,
or other third party, under garnishment, wage attachment, trustee process, or
bankruptcy proceeding, deduction from wages of the actual sum so paid is not
prohibited; provided, that neither the employer nor any person acting in his
behalf or interest derives any profit or benefit from the transaction.
(3) Payments to
employee's assignee.
(a) Where an
employer is directed by a voluntary assignment or order of his employee to pay
a sum for the benefit of the employee to a creditor, donee, or other third
party, deductions from wages of the actual sum so paid is not prohibited,
provided, that neither the employer nor any person acting in his behalf or
interest, directly or indirectly, derives any profit or benefit from the transaction.
(b) No payment by
the employer to a third party will be recognized as a valid payment of
compensation required under the Act where it appears that such payment was part
of a plan or arrangement to evade or circumvent the requirements of the Act.
For the protection of both employer and employee, it is suggested that full and
adequate record of all assignments and orders be kept and preserved.
(c) Under the
principles stated in paragraphs (a) and (b) of this subsection, employers will
be permitted to treat as payments to employees for purposes of the Act sums
paid at the employees' direction to third persons for the following purposes:
Sums paid, as authorized by the employee, for the purchase in his behalf of
United States Savings Bonds; union dues paid pursuant to a collective
bargaining agreement with bona fide representatives of the employees;
employees' accounts with merchants independent of the employer; insurance
premiums; voluntary contributions to churches and charitable, fraternal,
athletic, and social organizations or societies from which the employer
receives no profit or benefit directly or indirectly.
Section 3. Payment
of Wages to Tipped Employees. (1) Conditions for taking tip credits in making
wage payments. The wage credit permitted on account of tips under KRS
337.275(2) may be taken only with respect to wage payments made under the Act
to those employees whose occupations in the workweeks for which such payments
are made are those of "tipped employees" as defined in KRS
337.010(2)(d). To determine whether a tip credit may be taken in paying wages
to a particular employee it is necessary to know what payments constitute tips,
whether the employee receives more than twenty (20) dollars a month in such
payments in the occupation in which he is engaged, and whether in such
occupation he receives these payments in such amount customarily and regularly.
(2) General
characteristics of tips. A tip is a sum presented by a customer as a gift or
gratuity in recognition of some service performed for him. It is to be
distinguished from payment of a charge made for the service. Whether a tip is
to be given, and its amount, are matters determined solely by the customer, and
he has the right to determine who shall be the recipient of his gratuity. In
the absence of an agreement to the contrary between the recipient and a third
party, a tip becomes the property of the person in recognition of whose service
it is presented by the customer. Only tips actually received by an employee as
money belonging to him which he may use as he chooses free of any control by
the employer, may be counted in determining whether he is a tipped employee
within the meaning of the Act and in applying the provisions of KRS 337.275(2) which
govern wage credits for tips.
(3) Examples of
amounts not considered as tips. A compulsory charge for service, such as ten
(10) percent of the amount of the bill, imposed on a customer by an employer's
establishment, is not a tip and, even if distributed by the employer to his
employees, cannot be counted as a tip received by an employee. Similarly, where
negotiations between an employer and a customer for banquet facilities include
amounts for distribution to employees, the amounts so distributed are not
counted as tips received. Likewise, where the employment agreement is such that
amounts presented by customers as tips belong to the employer and must be
credited or turned over to him, the employee is in effect collecting for his
employer additional income from the operations of the employer's establishment.
Even though such amounts are not collected by imposition of any compulsory
charge on the customer, plainly the employee is not receiving tips within the
meaning of the Act. The amounts received from customers are the employer's
property, not his, and do not constitute tip income to the employee.
(4) More than twenty
(20) dollars a month in tips. An employee who receives tips must receive more
than twenty (20) dollars a month in the occupation in which he is engaged. An
employee engaged in an occupation in which the tips he receives meet this
minimum standard is a tipped employee for whom the wage credit provided by KRS
337.275(2) may be taken in computing the compensation due him under the Act for
employment in such occupation, whether he is employed in it full time or part
time. An employee employed full time or part time in an occupation in which he
does not receive more than twenty (20) dollars a month in tips customarily and
regularly is not a tipped employee within the meaning of the Act and must
receive the full compensation required by the Act in cash or allowable
facilities without any credit for tips received.
(a) The definition
of tipped employee does not require that the calendar month be used in
determining whether more than twenty (20) dollars a month is customarily and
regularly received as tips. Any appropriate recurring monthly period beginning
on the same day of the calendar month may be used.
(b) An employee must
himself customarily and regularly receive more than twenty (20) dollars a month
in tips in order to qualify as a tipped employee. The fact that he is part of a
group which has a record of receiving more than twenty (20) dollars a month in
tips will not qualify him.
(5) Receiving the
minimum amount customarily and regularly. The employee must receive more than
twenty (20) dollars a month in tips customarily and regularly to qualify as a
tipped employee. If it is known that he always receives more than the
stipulated amount each month, as may be the case with many employees in
occupations such as those of waiters, bellhops, and taxi cab drivers, the
employee will qualify and the tip credit may be applied. On the other hand, an
employee who only occasionally or sporadically receives tips totaling more than
twenty (20) dollars a month, will not be deemed a tipped employee. The phrase
"customarily and regularly" signifies a frequency which must be
greater than occasional, but which may be less than constant. If an employee is
in an occupation in which he normally and recurrently receives more than twenty
(20) dollars a month in tips, he will be considered a tipped employee even
though occasionally, because of sickness, vacation or the like, he fails to
receive more than twenty (20) dollars in tips in a particular month.
(6) Initial and
terminal months. An exception to the requirement that an employee, whether full
time, part time, permanent or temporary, will qualify as a tipped employee only
if he customarily and regularly receives more than twenty (20) dollars a month
in tips is made in the case of initial and terminal months of employment. In
such months the purpose of the provision for tipped employees would seem
fulfilled if qualification as a tipped employee is based on his receipt of tips
in the particular week or weeks of such month at a rate in excess of twenty
(20) dollars a month, where the employee has worked less than a month because
he started or terminated employment during the month.
(7) The tip wage
credit. In determining compliance with the wage payment requirements of the
Act, under the provisions of KRS 337.275(2) the amount paid to a tipped
employee by an employer is deemed to be increased on account of tips by an
amount which cannot exceed fifty (50) percent of the minimum wage applicable to
such employee in the workweek for which the wage payment is made. This credit
is in addition to any credit for board, lodging, or other facilities which may
be allowable under this administrative regulation. The credit allowed on
account of tips may be less than fifty (50) percent of the applicable minimum
wage; it cannot be more. The actual amount is left by the statute to
determination by the employer on the basis of his information taken from his
records concerning the tipping practices and receipts in his establishment. In
order for an employer to take the maximum credit allowed by this special
provision, the tipped employee must receive the maximum in actual tips. If the
employee is receiving less than the amount credited, the employer is required
to pay the balance so that the employee receives at least the minimum wage with
the combination of wages and tips. The tip credit may be taken only for hours
worked by the employee in an occupation in which he qualifies as a tipped
employee. An employer shall not use any part of an employee's tips to pay the
minimum wage to any employee; but may only apply credit toward the payment of
the minimum wage to the employee who actually received the tip. Under
employment agreements requiring tips to be turned over or credited to the
employer to be treated by him as part of his gross receipts, the employer must
pay the employee the full minimum hourly wage.
(8) Overtime
payments. When overtime is worked by a tipped employee who is subject to the
overtime pay provisions of KRS 337.285, his regular rate of pay is determined
by dividing his total remuneration for employment in any workweek by the total
number of hours actually worked by him in that workweek for which such
compensation was paid. A tipped employee's regular rate of pay includes the
amount of tip credit taken by the employer (not in excess of fifty (50) percent
of the applicable minimum wage), the reasonable cost of any facilities
furnished him by the employer, and the cash wages including commissions and bonuses
paid by the employer. Any tips received by the employee in excess of the tip
credit need not be included in the regular rate. Such tips are not payments
made by the employer to the employee as remuneration for employment.
(9) Tip pooling. The
statute permits employees to enter into an agreement to divide tips among
themselves. Where employees enter into this type of agreement, as where waiters
give a portion of their tips to the busboys, both the amounts retained by the waiters
and those given to the busboys are considered tips of the individuals who
retain them, in applying the provisions of KRS 337.275(2) and this
administrative regulation. Where an employer requires his employees to pool
tips, no credit may be taken and the employer must pay the employee the full
minimum wage.
Section 4. Records.
Where an employer uses the reasonable cost of furnishing an employee with
board, lodging, or other facilities in meeting the requirements of KRS 337.275
and 337.285, it will be necessary to keep the following records, in addition to
those required by KRS 337.320:
(1) The facility
being provided by the employer to the employee; and
(2) The cost being
charged for such facility by the employer. (LAB 8; 1 Ky.R. 153; eff. 12-11-74;
TAm eff. 8-9-2007.)