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Exempt minimum wage with lodging deduction from paycheck

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  • Exempt minimum wage with lodging deduction from paycheck

    To qualify for exemption under section 13(a)(1) of the FLSA, an exempt employee must earn the minimum salary amount as set forth in the regulations exclusive of board, lodging or other facilities

    Question: Exempt employee's W-2 cash gross wages are $25,000.00. From these gross wages, taxes and $6,000.00 of rent for employer owned housing is withheld from their paycheck. Is this a violation of minimum wage law for an exempt employee when the rent deduction drops an employee's wages below the minimum wage of $23,660.00?

    Thanks

  • #2
    Is the employee required to live there and pay the rent?
    I post with the full knowledge and support of my employer, though the opinions rendered are my own and not necessarily representative of their position. In other words, I'm a free agent.

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    • #3
      Employee is not required to live here (it is not a requirement of their job to live on-site) but if they choose they obviously must pay the rent.

      Comment


      • #4
        So you are claiming that the employer is legally required to give free room and board to the employee on top of the salary even though the employer is not requiring the employee to live there? That no employer in their right mind would ever rent a dwelling to any employee? That your employer should instantly fire and evict you?

        Interesting theory but I would be very surprised if federal DOL agreed with it. Your argument would be stronger if you referenced 29 CFR 541.606. FLSA 13(a)(1) does not actually mention "facilities". That would be in 541.606. But the obvious employer counter argument is the deduction is "for the convience fo the employee" (not the employer). And historically federal DOL restictions on deductions are specific to "for the convience of the employer" deductions only.
        "Reality is that which, when you stop believing in it, doesn't go away".
        Philip K. **** (1928-1982)

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        • #5
          DAW-I am in senior level management and an employee as well. I am looking for an answer to my original question and it truly does not make any difference to me what the answer is as long as it complies with the law. I am clueless what "argument" or "theory" I am trying to communicate that the "federal DOL agreed with it" as you suggest. I am simply asking a question not making a statement.

          I am not sure what you mean with your questions at the beginning. In my opinion they have little to no relevance to my question. I know room & board is always taxable unless they meet certain restrictions-again this is not part of my question.

          I referenced FLSA 13(a)(1) in my question to refer to what type of employee I was asking about (exempt vs. non-exempt).

          Back to the original question-is the rent reduction considered dropping an employee below the minimum wage of $23,660 as it applies to 29 CFR 541.606

          Comment


          • #6
            "Taxable" is the Internal Revenue Code (IRC). Which has nothing to do with the FLSA law.

            There is no general rule that that the employer cannot charge you for rent. Not in FLSA or anywhere else. Your cite of FLSA 13(a)(1) does not actually mention rent or facilities. For employees who are both Exempt and Salaried, the applicable cite would be 29 CFR 541.606. If we were instead talking about non-exempt employees, the related cite would be 29 CFR 531.xxx. What both of these regulations basically say is that minimal pay requirements (MW, OT for non-exempt, $455/week for certain Exempt Salaried employees) cannot be reduced by "for the benefit of the employer" deductions. Which is why we asked if the employer was requiring the employee to live in the housing. Your answer was no they were not. This makes it a "for the benefit of the employee" deduction. Which is not subject to these deduction restrictions.

            I understand that this is not the answer you are looking for. No problem. Just file a wage claim with federal DOL. Since you are not right you will lose, but that is your path.
            "Reality is that which, when you stop believing in it, doesn't go away".
            Philip K. **** (1928-1982)

            Comment


            • #7
              Maybe I am reading this differently, but I don't think the OP is speaking of himself personally, but trying to make sure that the company is doing it right for another employee so the employer doesn't have a wage claim filed against them. I am not reading where he is ever talking about it personally, unless messages have been edited.

              So since it is a deduction that is for the benefit of that employee, no you would have minimum salary/wage issues. If you required he lived there and charged rent, then it could be an issue. And beyond that, there could be tax issues either way.

              Comment


              • #8
                If we are talking IRC only (taxability), then if/when the employer fails to charge fair market value for the rent, we (most of the time) have taxable transactions. There is a narrow exception for companies discounting their own product. Example. If the employer was say an apartment building (whose product is renting aparements) there is a certain percentage below FMV that the emploeyr can legally discount their product without causing a taxable transaction. This is a generic exception applicable to all employers. And there is a separate unrelated narrow exception specific to lodging that if the employer forces the employee to live in the housing as a condition of employment then IRS might consider the housing costs to not-taxable. No sure things. IRS has seen too many employers play games. And IRS rules are written in such way that everything of value received as a result of the employment relationship is fully taxes wages unless IRS specifically says otherwise. IRS does not generally consider "forcing" the CEO to live in a 25,000 square foot house to be non-taxable, for example.

                If we are talking FLSA only, then the concern is that statutory payment requirements are made "free and clear" of any "for the benefit of the employer" deductions. This would not include statutory deductions such as taxes and would not include voluntary "for the benefit of the employee" deductions.
                "Reality is that which, when you stop believing in it, doesn't go away".
                Philip K. **** (1928-1982)

                Comment


                • #9
                  Originally posted by MajorTH View Post
                  To qualify for exemption under section 13(a)(1) of the FLSA, an exempt employee must earn the minimum salary amount as set forth in the regulations exclusive of board, lodging or other facilities

                  Question: Exempt employee's W-2 cash gross wages are $25,000.00. From these gross wages, taxes and $6,000.00 of rent for employer owned housing is withheld from their paycheck. Is this a violation of minimum wage law for an exempt employee when the rent deduction drops an employee's wages below the minimum wage of $23,660.00?

                  Thanks
                  Based on what you shared, the answer is "no", it is not a violation. The law is trying to avoid an employer insisting someone live on site, claiming the value of the property is 25K and paying the employee $0 or something close to it. If the employee voluntarily lives there and the deduction for housing is for their convenience, it is not counted against the minimum salary.
                  I post with the full knowledge and support of my employer, though the opinions rendered are my own and not necessarily representative of their position. In other words, I'm a free agent.

                  Comment


                  • #10
                    Thank you "hr 4 me" and "ElleMD" for reading my post and not reading into & making incorrect assumptions. Despite my communication in the posts, "DAW" sure is determined I have an "axe to grind" with my employer and want to make a claim against my employer--Nothing could be further from the truth. I am the employee (along with a number of others) but I am also the employer as well--wouldn't make much sense to bring a lawsuit against myself.

                    Thanks "hr 4 me" and "ElleMD" for sticking to the question and giving me a clear straightforward answer. This is what I have been doing since the Aug 2004 law but I began to second guess myself after reading 29 CFR 541.606-I was missing the concept of "for the benefit of the employer or employee" DAW thanks for your input on citing the law/examples-just be careful in making negative assumptions.

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