Employers beware of new minimum wage law

During the last election, voters approved a new constitutional amendment, raising the minimum wage from $5.15 per hour to $6.15 per hour. The amendment took effect on Nov. 26, but raises obvious issues and many hidden issues of which employers should be aware and carefully consider. The following is intended to provide some guidance and help answer some frequently asked questions with respect to the amendment's repercussions.

What does the amendment provide?

The new minimum wage requirements apply (with minor exceptions addressed below) to employers who do not make a qualified health plan available to their employees. A qualified health plan is one that provides coverage to employees and their dependents at a cost to the employee not to exceed 10 percent of the employee's gross taxable income. "Gross taxable income" has the same definition as the one provided by the Internal Revenue Code, which includes tips and gratuities. Employers may not, however, consider tips and gratuities for purposes of determining whether an employee makes the requisite minimum wage. Thus, tips and gratuities are considered for measuring if your plan is a qualified plan but are not considered for meeting the applicable minimum wage.

This essentially establishes a two-tier compensation system: 1. a lower tier at $5.15/hour, conditioned upon making a qualified health plan available to employees; and 2. a higher tier at $6.15/hour, if the employer chooses not to make a qualified health plan available to employees.

The amendment does provide for automatic adjustment of the minimum wage based upon adjustments to the federal minimum wage rate or the cost of living, whichever is greater. The cost of living adjustment may not exceed 3 percent, but there is no similar limitation for increases in the federal minimum, which is particularly important in light of the fact that in January of this year the house voted to increase the federal minimum wage to $7.25 over the next two years. If also passed by the Senate, this would have a significant impact on Nevada employers.

Are there any exceptions/exemptions?

The new amendment does not apply to employees who are less than eighteen years old; who are employed by non-profit organizations for after school or summer employment; or who are employed as trainees for a period not longer than 90 days. Critically, there is no distinction between full-time, permanent, part-time or temporary employees.

With regard to the third exemption, the term "trainee" is not defined either by the Nevada Labor Commissioner or the amendment. While one possible interpretation of a trainee would apply to new employees who are placed into a "trainee" classification, the commissioner or the courts may reject such an interpretation. A more likely interpretation of "trainee" is to apply it to those positions that are recognized as trainees under existing statutes or regulations, such as veterinary technician trainees, environmental health specialist trainees, and possibly even those classified as trainees under a collective bargaining agreement. As a result, until there is further clarification from the commissioner or courts, our advice is to not attempt to circumvent the amendment by merely classifying new employees or newly promoted employees as "trainees."

The following Q&A address common inquiries we have received since the new amendment. They illustrate some of the day-to-day difficulties that employers have faced in understanding and complying with the amendment's provisions.

What if an employee is working part time and is not eligible for the health insurance plan that the employer provides?

The employee must receive the higher-tier minimum wage of $6.15. The amendment does not distinguish between full-time, part-time, permanent, or temporary employees. This relates to whether a qualified health plan is available to the particular employee. In this case, it is not available to the employee because the employee is not eligible. For some employers this may mean a part time employee is earning a higher hourly rate than a full time employee for the same job. The effect of this on employees, including their morale, should be considered when setting wage and benefits options. A few options could include raising the wage rate of the full time employees, determining if you can provide a lower cost/benefit plan to your part time employees or reorganizing your work force to only allow full time jobs affected by this paradox.

What about probationary employees or those in their orientation period who are not yet eligible for insurance coverage?

The same rationale applies because the plan is not available to the employee, he must receive the higher minimum wage. This means that employers who do not provide a qualified health plan to their probationary employees will have to pay higher wages to their probationary employees than their regular employees who are eligible under the plan. The employee will actually have to receive a reduction in minimum wage once she becomes eligible for coverage under the plan.

What if an employee opts out of dependent coverage?

An employee who declines coverage may receive the lower tier $5.15 per hour because the employer has made a qualified health plan available. However, the employer must document that the employee has declined coverage.

Do employers have an obligation to notify employees of minimum wage adjustments?

Yes. Employers have an obligation to post the applicable minimum wage for the particular period - on or before July 1 of each year.

What specific type of health insurance coverage must be provided?

The amendment does not specify the level of coverage required nor does it address the issue of providing different policies of coverage to different classes of employees. Thus, these options appear to be at the employers' discretion, so long as the employer maintains compliance with all other state and federal laws concerning health insurance and changes to such insurance.

Anthony Hall and Dora Lane are attorneys at Hale Lane Law Offices in Reno. Both practice primarily in the field of employment and labor law.