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7(1) Exemption Multi-State

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  • 7(1) Exemption Multi-State

    It is my understanding the refers to the FLSA overtime exemption for commissioned employees of retail or service establishments (known as the “7(i)” exemption). For the banquet industry, it is customary to charge a mandatory service charge, then distribute that service charge in whole or in part to the banquet service staff. Several court cases have attempted to clarify if such a payment is recognized as a “gratuity”, or if can it be a “commission” within the meaning of 7(i).

    I was notified, it is mandated an employer who has such staff must post a poster.

    So far, I can't find anyone who generates such a poster. Also, I would need this poster in about 18 states.

    Does anyone know a good resource?

  • #2
    Some one else will have to address the "poster" question.

    I can handle the FLSA related question. The FLSA law has a number of rules, including the so-called 7(i) exception (Retail/Service Establishment). It would also include language specific to tipped employment. The 7(i) exception defines just what are retail and service establishments and what are commissions. Section 7 is the Overtime section, so even if you could convince some court of your argument, the tipped rules are Section 3 and are related to Minimum Wage, not Overtime. Meaning that all of the tipped rules would be in place even if you could also get the 7(i) rules to effect the overtime calculation (which is all the 7(i)) rules do in the first place). Federal DOL is really clear that the 7(i) exception in no way effects the minimum wage rules.

    I am including pointers to the actual FLSA law, and to the DOL rules on tips and Retail/Service establishment. The factsheets are not "law" but they are the opinion of federal DOL.

    The best source I have on both tips and 7(i) is the American Bar Association's FLSA textbook. You could probably borrow one from a law library. The primary author is Kearns.
    "Reality is that which, when you stop believing in it, doesn't go away".
    Philip K. **** (1928-1982)


    • #3
      7(i) Exemption

      The 7i exemption would be applicable to tip paid employees (if the minimun of $2.13 & $20 a month in tips is received) which would be exempt from the overtime provision under 7i. Otherwise they are just commission paid employess. The employer must still paid at least the applicable minimum wage. When the hospitality industry want to use the 7i exception, minimum wage is not their main concern, overtime is. The employee must still paid at the at the federal tip minimum of $2.13 per hours, higher on some states such as $4.23 in Florida. The employer imposes a fee to the client that is collected by the employer. At the end of the week the employer turns these client fees into commissions and pays the tip employees with these fees-commissions. If the employees total wages received are $10.88, the employee is exempt from overtime.

      The tip provision of the law is not relevant. The employees in essence received $2.13 for every hour work as wages plus at least $8.75 in commissions which exceeds the requirement of the regular rate of 1½ times the minimum wage and 50% of total wages was from commissions.
      Last edited by ArmyRetCW3; 01-07-2011, 02:36 PM.

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