Ch2. Wages — Minimum Wage, Payment Principles, and Regular Rate

Definition of Wages

Wages (FLSA):
All remuneration for employment, including the cash value of
remuneration paid in any medium other than cash

Key characteristics:
- Must be compensation for work (gratuitous payments are not wages)
- Name does not matter (bonuses, stipends, commissions, meal value)
- Obligation arises if there is a regular practice of payment

Wages vs. Gifts / Discretionary Payments:
Purely discretionary bonuses and holiday gifts = NOT wages
UNLESS there is a prior promise or established practice of payment,
in which case they convert to wages

Four Principles of Lawful Wage Payment

① Cash / Legal Currency Principle:
   Must be paid in US dollars
   Exception: employer may pay in checks or direct deposit
   (physical currency not required)

② Direct Payment Principle:
   Must be paid directly to the employee
   Third-party payment or deductions for employer debts
   are generally prohibited
   Exception: court-ordered garnishments; direct deposit to
   employee's own account

③ Full Payment Principle:
   No unauthorized deductions from wages
   Deductions that reduce pay below minimum wage are unlawful
   Exception: legally required deductions (income tax, FICA);
   court-ordered garnishments; authorized benefit deductions

④ Regular Pay Schedule Principle:
   Must be paid on regularly scheduled paydays
   Most states require semi-monthly or bi-weekly payment
   Exception: certain bonus and commission arrangements with
   different payment periods are permissible

Minimum Wage

Minimum Wage:
The floor below which wages may not fall;
designed to ensure basic subsistence

US Minimum Wage Levels:
Federal: $7.25/hour (since 2009)
State examples (2024–2025):
  California: $16.00/hour
  New York: $16.00/hour (NYC: $17.00/hour)
  Washington: $16.28/hour
  Texas: $7.25/hour (federal floor)

Coverage:
All covered employers regardless of size
Exception: youth training wage — workers under 20 may be
paid $4.25/hour for up to 90 days of initial employment

Minimum Wage Violation:
- Back wages + equal amount as liquidated damages (FLSA)
- Criminal: fines up to $10,000; imprisonment for willful violations

Minimum Wage Inclusions:
Regular hourly wages and fixed monthly salaries
→ Certain regular bonus amounts may also count toward minimum wage
   under DOL rules

Regular Rate of Pay

Regular Rate:
The actual rate at which an employee is compensated for work,
used as the base for calculating overtime premiums

Regular Rate Calculation:
= Total straight-time earnings ÷ Total hours worked

Required inclusions in the regular rate:
Base hourly or salary wages
Non-discretionary bonuses (production, attendance, safety)
Shift differentials
Piece-rate earnings
Most commissions

Excluded from the regular rate:
- Overtime premiums already paid
- Truly discretionary bonuses
- Gifts and vacation/holiday pay
- Contributions to qualified benefit plans

Uses:
Overtime = regular rate × 1.5 × hours over 40
Overtime premium for non-exempt employees

Average Rate (Weighted Average)

Average Rate:
Used when an employee works at two or more different rates
during the same workweek

Calculation:
Average rate = Total earnings at all rates ÷ Total hours worked

Uses:
- Multi-rate overtime calculations
- Workers' compensation benefit calculations
- Severance benefit determinations

Average Rate vs. Regular Rate:
Regular rate = for single-rate workweeks
Average rate = for multi-rate workweeks
Both serve as the overtime calculation base
(Regular rate ≥ applicable minimum wage)

Wage Claim Protections

Priority of Wage Claims:
Unpaid wages are given priority over most other creditor claims
in bankruptcy proceedings (up to $13,650 per employee
for wages earned within 180 days of the bankruptcy filing)

Remedies for Unpaid Wages:
① DOL Wage and Hour Division complaint
② State labor agency complaint
③ Private civil lawsuit (FLSA § 16(b))

Statute of Limitations:
FLSA wage claims: 2 years (3 years for willful violations)
State wage claims: typically 2–6 years (varies by state)

Penalties for Wage Theft:
Back wages + equal liquidated damages (FLSA)
Up to 3× damages in states with treble-damage statutes
Criminal prosecution for willful, systematic wage theft

Four Wage Payment Principles ★★★★★ : Currency · direct · full · regular. All four violations carry civil penalties and potential criminal liability. Memory tip: C-D-F-R (Currency, Direct, Full, Regular)

Regular Rate Requirements ★★★★★ : Regularity · universality · non-conditionality. All three must be met for a payment to be included in the regular rate for overtime purposes. Memory tip: RUC — Regular, Universal, Unconditional

Average Rate vs. Regular Rate ★★★★ : Retirement/workers’ comp = average rate. Overtime = regular rate. Memory tip: Comp/retirement = average; Overtime = regular

Practice Quiz

Q. Is a Lunar New Year bonus paid only to employees who remain employed on that date a wage that must be included in the regular rate?

No. Because payment is conditional on continued employment on a specific future date, the payment lacks the unconditional quality required for inclusion in the regular rate. The bonus is excludable as a conditional payment.

Q. What are the three exceptions to the full payment principle that allow deductions from wages?

① Legally mandated deductions (federal/state income tax, FICA/Medicare) ② Court-ordered garnishments ③ Employee-authorized deductions for benefits (health insurance, 401k) that comply with applicable law