Seasonal wage and hour issues – and pitfalls in North Carolina – seem to proliferate as summer vacation time approaches. In "Volunteers of America: The Other FLSA Classification Issue," posted March 26, 2013 in our NC Labor and Employment Blog, we discussed Fair Labor Standards Act ("FLSA") issues that arise from putting unpaid interns and volunteers to work in the summertime. Two other seasonal minimum wage and overtime issues concern seasonal amusement and recreational establishments and the employment of youth under the age of 20. We will turn our attention first to the FLSA's minimum wage and overtime exemption for seasonal amusement and recreational establishments, organized camps, and religious or nonprofit educational conference centers (collectively referred to as "seasonal amusement and recreational establishments"), and follow with a treatment of the federal Youth Minimum Wage. An employer who looks to take advantage of these exemptions must pay special attention to and take precautions under the North Carolina Wage and Hour Act ("NCWHA"), which is also discussed in this article.
FLSA Exemptions for Seasonal Amusement and Recreational Establishments
The basic requirements of the FLSA and the NCWHA provide that employees must receive a minimum wage of at least $7.25 per hour and must be paid an overtime rate of at least time and one-half the employee's regular rate of pay for all hours worked over 40 hours in a workweek. The FLSA and the NCWHA, however, provide certain exemptions from minimum wage and overtime requirements for specific classes of employees.
One such exemption is explicitly seasonal. It applies to seasonal amusement and recreational establishments. Under FLSA Section 13(a)(3), as well as the NCWHA, employees of these establishments are exempt from minimum wage and overtime provisions if either (1) the establishment does not operate for more than seven months in any calendar year; or (2) during the preceding calendar year, the establishment's average receipts for any six months of that year were not more than one-third of its average receipts for the other six months of the year. In order to qualify for this exemption, the establishment need only satisfy one of the two tests under FLSA Section 13(a)(3).
The first test, known as the "seasonal operations test," is predicated on the term "operate." Whether an establishment is "operating" for purposes of this exemption is a question of fact. "Off season" activities, such as general maintenance and ordering supplies or inventory, do not constitute "operate" for purposes of this exemption. Simply put, a seasonal establishment will meet the definition of "operate" for any months when it is engaging in its intended business purpose by operating as a seasonal amusement or recreational establishment.
Alternatively, if the establishment fails the "seasonal operations test," because it operates in more than seven months in any calendar year, the establishment may nevertheless satisfy the second test, sometimes referred to as the "33 1/3 percent test" or the "receipts test." The receipts test requires that the average receipts in the "low" six months must not be more than one-third of the average receipts in the "high" six months. In other words, the receipts in the "high" six months should be at least three times the receipts in the "low" six months, or put another way, up to (but not more than) one-quarter of the receipts should be in one period of six months with the remaining three-quarters occurring in the other six months of the same year.
The example given in Fact Sheet No. 18 published by the Department of Labor's Wage and Hour Division refers to a business in which total receipts for the busy months averaged $43,333 per month (or $260,000 over the six busiest months), while the receipts for the other six months of the year averaged $12,500 per month (or $75,000 for the six slowest months). Because the average receipts for the "low" six months were less than one-third of the average receipts for the "high" six months of the year, the exemption would apply.
The six months of the "low" and "high" periods, respectively, do not have to be comprised of consecutive months. Instead, the six individual months with the highest average receipts may be compared with the other six months that have the lowest average receipts.
If an establishment satisfies either the seasonal operations test or the receipts test, then the establishment will not be subject to the FLSA minimum wage and overtime requirements. However, state minimum wage and overtime requirements may remain in play. The same "seasonal" principles are in fact incorporated under the NCWHA, but with three significant differences.
NCWHA Exemptions for Seasonal Amusement or Recreational Establishments
First, the Commissioner for the North Carolina Department of Labor is empowered to set the minimum wage for seasonal amusement and recreational establishments at 85% of the applicable federal minimum wage. N.C. Gen. Stat. § 95-25.3. At this time, Commissioner Berry has not exercised her authority under the NCWHA to reduce the minimum wage for seasonal amusement and recreational establishments from the current federal minimum wage.
Although seasonal amusement and recreational establishments may qualify for an exemption from the federal minimum wage requirements under the FLSA, those seasonal establishments are still subject to the state minimum wage requirements of N.C. Gen. Stat. § 95-25.3. North Carolina has statutorily adopted the higher of the state minimum wage and the federal minimum wage. Therefore, under the NCWHA, seasonal amusement and recreational establishments must pay their employees at least $7.25 per hour, even though the establishment may be exempt from minimum wage requirements under the FLSA.
Second, the NCWHA provides that seasonal amusement and recreational establishments are marginally exempt from the overtime requirements of N.C. Gen. Stat. § 95-25.4. As such, seasonal amusement and recreational establishments only have to pay an overtime rate (i.e. one and one-half times the employee's regular rate of pay) for hours worked over 45 in a workweek, rather than the typical 40 hour requirement.
Finally, unlike the FLSA, the NCWHA does not provide a general exemption from minimum wage and overtime compensation for seasonal amusement and recreational establishments. However, the NCWHA does provide a specific exemption from minimum wage, overtime pay, and record keeping requirements for employees of a "boys' or girls' summer camp or of a seasonal religious or nonprofit educational conference center." N.C. Gen. Stat. § 95-25.14. These narrow subcategories of seasonal establishments receive a full exemption from minimum wage and overtime requirements under the NCWHA, just as they do under the FLSA.
Youth Minimum Wage Exemption
Another issue that may come up during summer break is the federal Youth Minimum Wage. The FLSA allows employers to pay a wage of not less than $4.25 per hour to employees who are under 20 years of age during the first 90 consecutive calendar days after initial employment. The 90-day clock begins to run on the first day of work for an employer and continues uninterrupted for the next 89 calendar days. It does not matter how many days during the 90-day period the youth actually performs work; the 90-calendar-day period continues to run even if the employee comes off the payroll during the 90-day time period.
To illustrate, suppose a 17-year-old student initially begins working for an employer on June 1, and continues working for the employer on various days over the next 60 days, from June 1 through July 30. If the student quits on July 30, so that he can return to school, the 90-day period will continue running even though the employee is no longer working for the employer. The 90-day eligibility period for the Youth Minimum Wage will end on August 29, which is 30 days after the student quit on July 30 (i.e., 90 consecutive calendar days after initial employment began on June 1). If this student were to return to work for this same employer at some point after August 29, the period of eligibility for the youth wage would have already expired. After August 29, this particular employer would have to pay this particular youth employee at least $7.25 per hour.
In addition to this 90-day limitation, eligible employees may receive the youth wage up to the day before their 20th birthday. On and after their 20th birthday, the employee is entitled to receive no less than the applicable minimum wage, which presently is $7.25 per hour. These two provisions go hand-in-hand. If the employee turns 20 before the 90-day period has elapsed, then the youth wage is inapplicable and the employee must receive at least minimum wage. Conversely, if the 90-day period passes before the employee reaches his or her 20th birthday, then the youth wage is likewise inapplicable and the employee, again, must be paid at least minimum wage for all hours worked.
The federal Youth Minimum Wage law also contains specific protections for employees, which make it illegal for employers to terminate or displace current employees to hire someone at the youth wage. This anti‑displacement protection includes a prohibition against "partial displacements," which includes such actions as reductions in hours, wages or employment benefits. An employer who fully or partially displaces a current employee to hire someone at the youth minimum wage is deemed to have violated the FLSA's anti-discrimination provision in Section 15(a)(3). A violation of Section 15(a)(3) entitles the aggrieved employee to receive full relief from the employer, including reinstatement of employment, payment of lost wages, and payment of liquidated damages.
Although the FLSA allows employers to take advantage of the Youth Minimum Wage exemption, the North Carolina Department of Labor has refused to implement a youth minimum wage exemption on the state level. It is the official position of the North Carolina Department of Labor that "the federal Youth Minimum Wage cannot be used by most employers in North Carolina . . . regardless of federal or State coverage." See North Carolina Position on the Federal Youth Minimum Wage, available at www.NCLabor.com.
Employees of agriculture and domestic employers in North Carolina are not subject to North Carolina's position on the Youth Minimum Wage, because these employers are not otherwise subject to the state minimum wage requirements under the NCWHA. Except for agriculture and domestic employers, all other employers in North Carolina, who are otherwise subject to the FLSA, must pay at least the applicable minimum wage of $7.25 per hour, regardless of whether the employee is under the age of 20 and within the first 90 days of initial employment.
Summer is upon us. The season presents unique FLSA and NCWHA issues that many of us would rather ignore, but in the realm of wage and hour law, ignorance is not bliss. Properly understanding your industry and whether your business qualifies for any seasonal exemptions under the FLSA or state law could open the door to previously untapped financial efficiencies for your business and workforce. However, one misstep in the wage and hour world could open the door to "opportunities" that are anything but advantageous to your company and bottom line. Therefore, always consult legal counsel on these seasonal wage and hour exemption issues, and remember, if you are subject to North Carolina's wage and hour laws, even the youngsters must receive at least minimum wage for their summer employment.
This post is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this post without obtaining the advice of an attorney. If you have questions concerning this post, please contact William Joseph Austin, Jr. at firstname.lastname@example.org or Devon D. Williams at email@example.com.