In the recent election, the voters in our state approved an amendment to the Nevada Constitution calling for an increase in Nevada's minimum wage ("the amendment"). The amendment, which took effect on Nov. 28, not only increased the minimum wage but also substantially affected Nevada's minimum wage exemptions and overtime requirements. The amendment also generated questions, particularly relating to the requirements of the lower tier wage, which the Nevada Labor Commissioner has attempted to clarify through the enactment of emergency regulations.
The amendment created two minimum wage tiers, allowing employers who offer qualified health benefits to pay the lower-tier minimum wage of $5.15 an hour, while all other employers would have to pay the upper-tier minimum wage of $6.15 an hour. Tips or gratuities received by employees cannot be credited as being any part of or offset against the wage rates required by the amendment.
The amendment also provided a mechanism for the minimum wage rate to adjust on a yearly basis in conformance with changes in the Consumer Price Index and/or changes in the federal minimum wage. Thus, if Congress raises the minimum wage to $7.25, which is anticipated in the near future, Nevada's minimum wage rate tiers would be increased to $7.25 an hour for those employers who offer qualified health benefits and $8.25 an hour for those employers who do not.
Under the terms of the amendment, exemptions to minimum wage exist only for: (1) persons under the age of 18; (2) persons employed by a nonprofit organization for after school or summer employment; or (3) persons employed as trainees for a period not longer than 90 days. All other exemptions previously provided under Nevada law have been eliminated including taxicab drivers, baby sitters and the special minimum wage for severely handicapped persons.
The amendment also caused substantial changes to Nevada's overtime structure. Under Nevada's daily overtime requirement, employers are required to pay overtime to any employee whose hourly rate of pay is less than one and a half times the minimum wage if they work more than eight hours in a workday, unless there is an agreement for the employee to work 10 hours per day for 4 calendar days within a workweek. Thus, employers paying the lower tier wage of $5.15 an hour must pay daily overtime to those employees making $7.73 or less. However, if an employer is paying the upper tier of $6.15 an hour, it must pay daily overtime to those employees making less than $9.23 an hour. The amount of employees entitled to daily overtime could increase exponentially as the minimum wage rates are re-adjusted each year.
While the amendment made sweeping changes, the language of the amendment raised several practical concerns and questions. Most notably, the amendment provided little guidance to employers in what would be considered qualified health benefits. Instead, the amendment merely defined qualified health benefits as "making health insurance available to the employee for the employee and the employee's dependents at a total cost to the employee for premiums of not more than 10 percent of the employee's gross taxable income from the employer." This definition did not address what type of insurance was necessary, what time period an employer should use to calculate an employee's share of the premiums, and what happens if an employee is required to undergo a waiting period before the benefits are available. While the Labor Commissioner has clarified these issues in his emergency regulations, the answers may not be what employers want to hear.
To meet the emergency regulations' definition of qualified health benefits, a health plan must satisfy three requirements. The first two requirements clarify existing laws and were expected. The third requirement that health insurance must comply "with the requirements of NRS 608.1555 through 608.1576" presents a significant obstacle for certain health plans. NRS 608.1555 requires employers who offer health insurance to their employees to comply with the coverage, reimbursement, and eligibility requirements of individual health plans and also the requirements of group and blanket health insurance plans. In addition, under NRS 608.156, employers who provide health benefits must also provide "benefits for the expenses for the treatment of abuse of alcohol and drugs." Given all of these requirements, it appears that a simplified or scaled-back health insurance plan would likely not qualify as "health benefits" for the purpose of paying the lower-tier minimum wage. Since the type of coverage must be so broad and encompassing, the cost to employers to provide coverage may far exceed the cost of paying the upper minimum wage tier.
Moreover, while self-insured employers governed by the Employee Retirement Income Security Act (ERISA) would not have to comply with Nevada insurance requirements, it appears that they would have to do so under the emergency regulations in order to qualify for the lower minimum wage tier. Such a result was likely not intended by the Labor Commissioner.
Another clarification provided by the emergency regulations is how employers are to calculate whether their employees' share of the insurance premium exceeds 10 percent of their gross taxable income. The emergency regulations state that an employer may use: (1) the historical gross taxable income as previously reported to the Internal Revenue Service for the previous tax year; or (2) the employer may base the 10 percent of gross taxable income on actual income and premiums paid. In addition, the Labor Commissioner clarified that tips and gratuities can count towards an employee's gross taxable income. While this emergency regulation will help employees to make calculations for long-time employees, it does little to correct the administrative nightmare of calculating the actual income for those employed for less than a year.
One good result for employers was the emergency regulation regarding waiting periods. If an employer offers qualified health insurance, but the employee is not eligible to receive the coverage provided or there is a delay before the coverage can become effective because of a term or condition of the insurance plan, the employee may be paid the lower tier minimum wage. However, if the waiting period or delay is merely a requirement imposed by the employer, the upper wage tier must be paid until coverage is actually effective.
Left unanswered by the regulations is how a self-insured employer would fit into the equation. Presumably, if the self-insured employer's waiting period or delay is tied to a bona-fide insurance requirement, the employer could likely pay the lower tier to employees waiting for coverage to take effect. However, if the waiting requirement is merely arbitrary and not insurance-based, the self-insured employer may not be able to pay the lower tier wage.
Another interesting result of the amendment is that once an employee is offered qualified health benefits the employee is only entitled to receive the lowe-tier minimum wage of $5.15 an hour regardless of whether the employee accepts the insurance coverage. However, under the emergency regulations, the employer must document that the employee has declined coverage and the documentation must include the employee's signed waiver of coverage. The regulation further states that declining coverage may not be a term or condition of employment.
In sum, the amendment makes significant changes to Nevada's overtime and minimum wage structure. As a practical matter, the amendment gives employers the flexibility, to an extent, to determine what types of compensation packages they want to give to their employees pay a higher hourly rate or modify existing health insurance benefits. Employers may either raise the minimum wage for its employees, offer different types of qualified health benefits, or absorb more of the premiums associated with existing health benefits to enable employers to pay the lower minimum wage. However, any employers who are evaluating whether to offer qualified health benefits or to modify their current health insurance coverage to offer qualified health benefits must take care to ensure compliance with federal and state laws governing health insurance benefits.
Finally, the emergency regulations discussed above expire on April 11. Thus, the Labor Commissioner must propose and adopt temporary regulations before that date. To this end, the Labor Commissioner has scheduled several workshops to discuss some of the questions and problems still faced by employers. The next workshop in Northern Nevada will be held on Jan. 25 from 9 a.m. until 4 p.m. at the Cal-Neva Hotel. The Labor Commissioner has indicated that he is open to suggestions and proposals for the temporary regulations and we would encourage you to consider attending these workshops if you want your voice to be heard.
Miranda Du is a partner and chair of the employment law group at the Nevada law firm McDonald Carano Wilson. Ryan Bellows is an associate in the firm's Reno office and works primarily in the areas of employment law, construction law, and commercial litigation.
