Last week, the Department of Labor (DOL) announced that it had secured over $12,000 in back wages for 184 employees of a Chick-Fil-A franchisee. The settlement secured by the DOL’s Wage and Hour Division is a good reminder that DOL is still on the case, even during the COVID-19 pandemic. The franchisee ran afoul of the Fair Labor Standards Act (FLSA) by making improper deductions for employee uniforms:
Investigators found the employer violated FLSA minimum wage requirements when it charged employees earning minimum wage $60 for required uniforms, bringing their wages below the FLSA-required minimum wage of $7.25 per hour. The employer violated the FLSA’s overtime requirements when it failed to include bonuses employees earned in their rates when calculating overtime. This exclusion resulted in the employer paying overtime at rates lower than those required by law.https://www.dol.gov/newsroom/releases/whd/whd20200707-0
Proper deductions from payroll are an issue that comes up regularly in searches on this blog, and this situation is worth addressing in more detail under federal law. Beware before we go further, though: state laws vary widely from states like Indiana that are largely silent on deductions to states like California that have detailed deduction rules. Union collective bargaining agreements frequently have something to say on provision of uniforms.
The FLSA’s text does not require employers to cover all of their employees’ work-related expenses, nor does it prohibit employers from passing those costs on to employees. On the contrary, the FLSA explicitly permits employers to impose work-related costs on non-exempt employees. The real issue, as the DOL’s press release notes, is when an employer’s decision to impose those costs on employees directly or indirectly causes employees’ compensation to fall below the statutory minimum wage or applicable overtime premium. Deductions from employee pay for required uniforms are fraught with this risk, particularly in industries and locales where employee hovers near the statutory minimum wage.
What’s in a name? That which we call a Uniform by any other name would smell as sweet
The definition of “uniform” has some nuance to it, as regular readers might have suspected. Ever wonder why Target merely specifies that employees wear a red shirt and khaki or denim? One part of the reason would seem to come from the DOL’s Field Operations Handbook. Section 30c12 observes:
If an employer merely prescribes a general type of ordinary basic street clothing to be worn while working and permits variations in details of dress, the garments chosen by the employees would not be considered to be uniforms.
Certainly seems to fit the Target apparel guideline, right? Over the years, DOL has excluded from the definition of a “uniform” things like white shirts or blouses, ordinary footwear like “dark colored shoes” or steel-toed boots (though beware of OSHA in the latter case), “shirts that do not bear any logo”, and “trousers of a dark color.” In the DOL’s opinion, these types of clothing constitute “basic street clothing.” DOL does limit this to basic street clothing. A tuxedo or clothing “of a specific or distinctive style, color, or quality” falls within the definition of a uniform, as does any other “specific type and style of clothing” specified by an employer to be worn at work.
Where the employee can purchase the item of clothing and what it costs can also impact this inquiry. As the DOL has observed, if employers dictate a particular vendor and, due to whatever factor, the fee for what would otherwise be “basic street clothing” substantially exceeds what a similar item of clothing would cost elsewhere, this can transfer even “basic street clothing” into a uniform for FLSA purposes.
The difference between a “uniform” and “basic street clothing” matters for one important reason under the FLSA: the costs of a “uniform” are offset against an employees earnings to ensure that the employee receives the required federal minimum wage and overtime premium. However, “basic street clothing” does not. The FLSA does not prohibit an employer from imposing the cost of such an item on the employee, even if that means that the employees wages (after that imposed cost) fall below the minimum wage or overtime premium.
How Chick-Fil-A’s Franchisee Got In Trouble with Uniforms
In the Chick-Fil-A franchisee’s case, there was no question that it passed the costs of uniforms on to employees. Again, under the FLSA, an employer can only deduct for the cost of a uniform if after the deduction the employee earns at least the minimum wage and any required overtime premium. DOL Fact Sheet #16 explains further:
If an employee who is subject to the statutory minimum wage of $7.25 per hour (effective July 24, 2009) is paid an hourly wage of $7.25, the employer may not make any deduction from the employee’s wages for the cost of the uniform nor may the employer require the employee to purchase the uniform on his/her own. However, if the employee were paid $7.75 per hour and worked 30 hours in the workweek, the maximum amount the employer could legally deduct from the employee’s wages would be $15.00 ($.50 X 30 hours).
As this examples shows, the primary risk in a week with no overtime hours is deductions made for employees who make at or near the federal minimum wage.
For weeks where employees earn overtime pay, the deduction rule is far more strict, and it is much easier for employers to violate the FLSA’s overtime pay requirements.
The DOL takes a more aggressive position when The computation is somewhat more complicated in an overtime workweek. Except for certain room and board costs (pretty rare), “employers must pay employees statutorily-required minimum wage and overtime premium pay finally and unconditionally, or ‘free and clear.’” Past the first 40 hours, the DOL’s position is that any deduction for uniforms would violate the FLSA.
For exempt employees, deductions for uniforms or other work-related tools and expenses, the analysis is a bit different and somewhat more fact-specific. While violations are less common, they can be equally as expensive and damaging to a business. Federal law is just one consideration here, too. Many states have far more restrictive policies on deductions from pay for non-exempt employees for work-related tools, uniforms, and similar expenses. Your uniform deduction might pass muster under the FLSA while running afoul of a state wage payment law.
The deduction analysis here changes every week for non-exempt employees, particularly when the employee works a different number of hours and the uniform or other work-related cost is fixed. Your analysis is not a one-time calculation, but something you must consider each week. Many modern payroll systems do have options to notify you when processing payroll if pay falls below the statutory minimum wage, but this is not foolproof. In my experience, even the largest payroll systems struggle to identify when a payroll period includes improper overtime deductions. In other words, monitor this carefully every payroll period if you elect to make these types of deductions.
Finally, start with the threshold question: are deductions for uniforms or other work-related items worth the trouble? Aside from frequent, complex calculations and the attendant potential FLSA and state law wage violations, you are putting your business at a competitive disadvantage both in terms of pay and employee morale when the wage you provide comes with mandatory carve-outs and deductions.