803 KAR 1:080. Board, lodging, gratuities and other allowances

Link to law: http://www.lrc.ky.gov/kar/803/001/080.htm
Published: 2015

      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.)
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