Industry Leaders Detail Effects of NLA Victory on Chauffeur Tip Rules

Posted on April 12, 2013 by - Also by this author

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NLA board directors Richard Kane, Scott Solombrino and Diane Forgy helped explain a recent Department of Labor ruling at an NLA general meeting during the 2013 International LCT Show on Feb. 5-7.
NLA board directors Richard Kane, Scott Solombrino and Diane Forgy helped explain a recent Department of Labor ruling at an NLA general meeting during the 2013 International LCT Show on Feb. 5-7.

LAS VEGAS, Nev. — Leaders of the National Limousine Association gathered during the Show on Feb. 6 to celebrate and clarify a federal ruling that limousine operators do not have to pay overtime wages on chauffeur tips as long as those tips are discretionary.

The leaders also divulged more details on how the NLA succeeded in scoring its biggest regulatory victory since the group formed in 1985.

A November 2012 ruling from the U.S. Department of Labor went a long way in clarifying the difference between imposed charges, which are viewed as wages subject to overtime, and tips, which are discretionary and not subject to overtime. The distinction brought a long-sought answer for limousine operators on when a tip is considered mandatory and when it is deemed discretionary. The decision culminated an organized effort by the NLA to prevail on this issue.

“Without this collaborative effort, we would not be where we are today,” said Diane Forgy, the 2010-2013 NLA President. “It’s almost impossible to put a number on it. It is a dramatic, significant victory, and one of the proudest moments I’ve ever had being a part of this board of directors and being part of the NLA.”

Action Gets Results  
NLA board director Scott Solombrino was among the group of industry leaders out front on this issue. He said an aggressive wave of audits prompted the NLA to pursue a path toward resolution. Over many months, NLA leaders and lobbyists persuaded 68 members of Congress, both Democrats and Republicans, to write to Labor Secretary Hilda Solis about reversing the department’s position on paying overtime on tips. NLA leaders met with a team of DOL lawyers and officials to resolve the issue.

“We received notification that the DOL did not have compelling evidence as to how our industry interacts with its customer base in order to provide an avenue of compliance,” said NLA board director Richard Kane, also the CEO of Washington, D.C.-based International Limousine Service. “Therefore, we chose to reach out to our fellow operators for documentation of evidentiary value and then engage key House and Senate members for political support. This was a group effort and it ended up turning around what was a dismal situation for us. We would not be where we are today. We now have a framework, guidelines and a pathway to be in compliance.”

Solombrino told the ballroom full of Show attendees at the MGM Grand that the DOL decision affects every limousine operator in the U.S. “The DOL and IRS have formed a joint task force and were planning to audit 6,000 chauffered car operators on this issue. This is the biggest win ever among associations in the entire industry.”

Tips on Tips
Solombrino and Kane were then joined by NLA board director Dawson Rutter, the CEO of Boston-based Commonwealth Worldwide Chauffeured Transportation, to explain to operators how to fully comply with the DOL ruling. Operators who deviate from the guidelines will not fare well in an audit, the leaders warned. Below is a summary of insights from Rutter:

  • First, find a qualified, experienced employment attorney in your city to make sure your company is in compliance and for any or all legal advice on this issue. You have to become a student of the issue to make sure you are in full compliance.
  • It is very important that when you are setting up paperwork, contracts and RFPs, to always talk about a “recommended tip,” not a mandatory tip. You should have good language in all of your documentation.
  • Tips should be at the full discretion of the client. One good place to find accurate language is in the Country Club Exemption. The exemption has the precise language that the DOL wants to see in your documentation.
  • Make changes now to reduce liability for overtime on tips. If you are hit with an audit and found to be out of compliance, you’ll need to backtrack and recalculate for workers’ comp premiums.
  • You cannot withhold any fees or charges from a chauffeur’s tip, not even credit card fees. That will disqualify you from the exemption.
  • Whatever the farm-out company is paying to a chauffeur, you can’t change it and bill a different amount to the customer. You have to pay the same amount to that affiliate’s chauffeur. If a tip is on the bill, the chauffeur at the farm-out company had better be getting that, and only that amount.
  • Never say at any point in time that the tip has been determined and it is irreversible. It must be discretionary at all times. You cannot withhold any amount of money from the chauffeur’s paycheck.
  • You cannot retrieve a tip a customer modified from a future payroll. When a customer requests a lower tip, you should issue a letter to the chauffeur that the tip has been modified and money should be returned. If the chauffeur does not return the tip, then you have to make a small claims case.
  • In an audit situation, if you have modified the tip and don’t get the money back, you could be invoking overtime compensation as well.
  • Keep accurate records of all modified tips by the customer.
  • An administrative/service charge could be determined to be a tip.
  • Line item all costs, including tips. Do not lump them together into surcharges.
  • If you are paying commissions, you are not exempt from overtime rules. The federal law states you must keep track of hours of service, take total of commissions, and divide by hours of service. That is the basis of overtime calculations. If that equals at least minimum wage, you are in compliance, if not, you are out of compliance.
  • No negotiation: If a tip is negotiated, then it is disqualified. It must be recommended, and you can use different recommendations. The customer needs to tell you what the tip will be.
  • Be aware that if you get into litigation or an audit, people litigating against you see you as a big, bad employer. Regulators, auditors and attorneys don’t like small businesses because they think they are cheating someone.

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