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Nevada Supreme Court Decides That An Employer Must Only Offer A Qualifying Health Plan And That Tips Do Not Count Toward Gross Taxable Income

Volume 15, Issue 23
October 28, 2016

Yesterday, in MDC Restaurants, LLC v. The Eighth Judicial District Court of the State of Nevada, the Nevada Supreme Court interpreted two important provisions of the Minimum Wage Amendment ("MWA" or "Amendment").

First, the Court addressed the Amendment's requirement that an employer "provide" qualifying health benefits to pay the lower-tier minimum wage. The question before the Court was whether it is sufficient for an employer to offer the benefits or whether the employer must actually enroll the employee in the benefits. Many employees were contending that upon hire they were entitled to the higher-tier minimum wage and that the employer could not use the lower-tier until the employees were actually enrolled in the qualifying health plan. The Nevada Labor Commissioner's regulation (NAC 608.102) provides that an employer need only offer the benefits to use the lower-tier minimum wage. The Supreme Court agreed, ruling that "under the MWA, health benefits need only be offered or made available for the employer to pay the lower-tier wage."

Second, the Court addressed the Amendment's requirement that, in order to be considered "qualifying," health benefits must be offered "at a total cost to the employee for premiums of not more than 10 percent of the employee's gross taxable income from the employer." The Court considered the question of whether tips could be included in the gross taxable income. The Labor Commissioner's current regulations (NAC 608.104) provide that tips, bonuses and other compensation can be included in the calculation, but the Supreme Court disagreed as to tips. The Court explained that the gross taxable income must come from the employer and pointed out that the MWA specifically prohibits employers from counting tips as part of the minimum wage rates.

Because Nevada employers can no longer include tips in their calculation of gross taxable income, many employers may need to re-evaluate their minimum wage calculations. This is especially important because the Court also determined that its ruling applies retroactively from the effective date of the MWA - November 28, 2006, notwithstanding the fact that employers were following the express language of the Labor Commissioner's regulation.

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.