Volume 5, Issue 18
December 22, 2006
On December 12, 2006, Governor Kenny Guinn signed the Nevada Labor Commissioner's Emergency Minimum Wage Regulations, which are in effect for 120 days and, thus, will expire after April 11, 2007. The emergency regulations differ in some respects from those originally proposed by the Labor Commissioner. The key provisions are discussed below.
Minimum Wage Tiers
It is the Labor Commissioner's view that the new minimum wage for employees (unless they fall into one of three exceptions) is $6.15 per hour. However, if an employer can demonstrate that it complies with certain criteria for offering health benefits (see the criteria listed below), it may pay employees between $5.15 - $6.14 per hour. See Emergency Regulations at Section 2(C).
The emergency regulations specify that the minimum wage rates will increase dollar for dollar with any rise in the federal minimum wage or by the cost of living adjustment (COLA), whichever is greater. However, increases to the COLA are capped at 3% annually. See Emergency Regulations at Section 3.
Exceptions to Minimum Wage
The language of the emergency regulations tracks the constitutional amendment, which begins by stating that "each employer shall pay a wage to each employee..." See Nevada Constitution Art. XV, Section 16(A); see also Emergency Regulations at Section 4(A). Thus, the scope of the minimum wage now includes most employees, including part-time, seasonal, temporary, domestic service and handicapped employees. See Emergency Regulations at Section 4(C). The only exceptions are for: (1) persons under the age of 18; (2) persons employed by a nonprofit organization or after school or summer employment; or (3) persons employed as trainees for a period of not longer than ninety (90) days. See Emergency Regulations at Section 4(B).
The term "trainees" is not defined, leaving many to speculate if trainees are equivalent to probationary employees. The Labor Commissioner has not taken a clear position on this issue, stating only that he intends to harmonize the constitutional amendment's use of the term "trainee" with how that term is used under the Fair Labor Standards Act (FLSA). Unfortunately, the term "trainee" is not defined within the FLSA. See 29 U.S.C. § 201 - 219 et seq. Instead, there is an allowance of sub-minimum wage pay for the first ninety days of work to "newly hired employees" who are under the age of 20. See 29 U.S.C. § 206(g)(1). Additionally, several Opinions issued by the Wage and Hour Division of the United States Department of Labor use the term "trainee" in conjunction with interns, externs, apprentices and other similar individuals and apply a strict six-part test to determine whether the individual is considered an employee under the FLSA. See e.g., FLSA 2006-12 Op. Wage and Hour (April 6, 2006); see also Walling v. Portland Terminal Co., 330 U.S. 148, 152 (1947). Under this test, an individual does not fall within the FLSA if the training primarily benefits the trainee, the trainee does not displace regular employees, the trainee is not entitled to wages during the training, and other criteria. Thus, it appears that almost all "probationary employees" as most use the term would not meet the rigid test required for a trainee exception to the minimum wage. Because this issue remains unsettled and is important to many of our clients, Kamer Zucker Abbott is seeking an advisory opinion from the Labor Commissioner.
Requirements for Paying the Lower Tier Rate
The Labor Commissioner has set forth a test to determine whether or not an employer may pay its employees a "lower tier" minimum wage. First, the employer must demonstrate that it offers qualified health insurance to the employee and the employee's dependents. See Section 5(A). Qualified health insurance is that which insures against bodily injury, disablement or death by accident or accidental means, against disablement or expense resulting from sickness, and safeguards contracts of health insurance against lapse in the event of strike, or layoff due to labor disputes. See Emergency Regulations at Section 5(C). A health plan qualifies if it complies with the requirements of NRS 608.1555 through 608.1576, which provide for nursing care, reconstructive mastectomy, and alcohol and drug treatment. See Emergency Regulations at Section 5(D). These provisions of the Nevada Revised Statutes also require compliance with the Individual Health Insurance statutes in NRS 689A, or the Group Health Insurance statutes in NRS 689B. The emergency regulations also state that a qualified plan must be offered or issued by a carrier authorized by the Nevada Insurance Commissioner or a federally approved self-funded plan established under the Employee Retirement Income Security Act of 1974 (ERISA). See Emergency Regulations at Section 6.
If the employer offers qualified health insurance to the employee and its dependents, and the employee's cost of his/her premiums does not exceed 10% of the employee's gross taxable income as defined under the Internal Revenue Code, the employee may be paid the lower tier wage. SeeEmergency Regulations at Section 5. The Labor Commissioner has indicated that the offering of insurance for the employee and dependents is independent of the requirement that the employee's cost for premiums not exceed 10%. Thus, the employer must look at each employee individually, because some employees' costs may exceed 10%, particularly if they elect dependent coverage, while other employees' costs may be minimal if they elect only single coverage.
If an employee declines coverage or dependent coverage and his/her cost for premiums does not exceed 10% of his/her gross taxable income, he/she may be paid in the lower tier rate provided that employee signs a waiver of coverage. Declining coverage may not be a term or condition of employment. See Emergency Regulations at Section 8.
Waiting Periods for Health Insurance
If the employer's health insurance plan imposes a reasonable waiting period before an employee is eligible to receive benefits, the employee may be paid the lower rate tier wage if the cost test is met. However, if an employer simply has an internal policy that imposes an artificial waiting period before employees are able to sign up for the health plan, the employee must be paid at the higher wage until such time that he/she becomes eligible for insurance or when the insurance becomes effective. See Emergency Regulations at Section 9.
Employee's Cost of Premiums Cannot Exceed 10% of His/Her Gross Taxable Income
The emergency regulations tie the 10% of an employee's premiums to gross taxable income "as defined under the Internal Revenue Code." Under this definition, it is the Labor Commissioner's current position that tips that are included on an employee's IRS Form W-2, can be included when calculating the cost of the premium against the employee's earnings. See Emergency Regulations at Section 5(B).
When determining whether an employee's premium exceeds 10% of his/her gross taxable income, an employer may use historical income data previously reported to the Internal Revenue Service (IRS) within the past year. See Emergency Regulations at Section 7. An employer may also base the calculations on actual income and premiums paid. Id. Previously, the Labor Commissioner was taking the position that the 10% of gross taxable income test had to be analyzed on a workweek by workweek basis, which would have been unworkable for many employers.
Although not specifically covered by the constitutional amendment, the Labor Commissioner has concluded that the new minimum wage law impacts the daily overtime statute. See NRS 608.018;See also Emergency Regulations at Section 10. Employers will essentially need to review each employee who makes under $9.23 and ascertain whether each employee was offered a qualified health plan. Daily overtime must be paid for the tier which the employer is qualified. Thus, if an employee was offered a qualified health plan, but declines by signing a waiver of coverage, that employee may be paid daily overtime based on the lower tier minimum wage, because the employer qualified for the lower minimum wage tier.
For example, if an employee is offered a qualifying plan, he/she must get daily overtime if he makes less than 7.73 per hour. If an employee is not offered qualified health benefits, he must get daily overtime if he/she makes less than $9.23 per hour. The daily overtime statutes contain certain exemptions including those employees who by mutual agreement work four, 10 hour days per week. See NRS 608.018(1)(b).
The Labor Commissioner stated he believes the 2007 Legislature will address the daily overtime issue, and possibly others, but doubts that the Legislature can address all of the questions arising from the constitutional amendment passage. The Labor Commissioner will enact temporary regulations prior to the expiration of the emergency regulations, which will be replaced by permanent regulations by November 2007. It is important to note that throughout this time frame, the regulations and interpretations may change. Thus, Employers should continue to closely monitor these issues throughout the new year.
To review the emergency regulations in their entirety, please visit:
Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.