On August 14, 2015 a Nevada District Court (Carson City) held that employers must pay the top tier of the state minimum wage (currently $8.25) unless an employee actually accepts the health insurance offered by the employer and, further, that employers may not consider tips or gratuities as employee income in determining whether or not the employer-provided health insurance is “affordable” under the Nevada minimum wage law. If the court’s interpretation of Nevada minimum wage law is adopted by the Labor Commissioner, it will represent a significant change in the way the law has been interpreted by the Labor Commissioner to date, and this ruling potentially has dramatic ramifications for Nevada employers who have minimum wage employees.
Article 16 of the Nevada Constitution sets out a two-tier minimum wage system that allows for the payment of a lower-tier minimum wage (currently $7.25) if employees are “offered” qualified health insurance. In order for employer-provided health insurance to be “qualified” it must cover certain categories of health care expenses, and the premiums must be “affordable” to employees. The Nevada Administrative Code (“NAC”) provides various calculations to determine whether or not the premiums are affordable for employees.
While the Constitution has set out a framework for Nevada’s two-tier minimum wage system, the Nevada Labor Commissioner is responsible for drafting the regulations pertaining to its implementation and enforcement. To that end, the Labor Commissioner issued NAC sections 608.000(1) and 608.104(2). NAC section 608.000(1) provides that employers may utilize the lower rate of the minimum wage if they merely “offered” health insurance to employees, and may pay employees the lower minimum wage even if the employees decline coverage. Nevada regulations require employers to keep written records of any such declinations. NAC section 608.104(2) provides that employers may count employees’ tips as part of their compensation when determining whether or not the premiums are affordable for employees.
In the recent case of Hancock v. the State of Nevada, Hancock sued the State of Nevada and the Office of the Nevada Labor Commissioner claiming that the above two regulations were invalid because they were incompatible with the Nevada Constitution. Specifically, Hancock claimed that, in order to utilize the lower minimum wage, employees actually had to accept the health insurance offered by employers; that is, merely “offering” health insurance was inadequate under the Constitution. Hancock also contended that based on the state Constitution employers could not count employees’ tips in affordability calculations, contrary to NAC section 608.104(2).
The Nevada District Court agreed with Hancock’s contentions and held that NAC sections 608.104(2) and 608.100(1) are invalid and enjoined the Labor Commissioner from enforcing these provisions statewide. The Nevada Labor Commissioner still has time to appeal this decision, but has not yet filed an appeal. It is unclear at this time whether this decision will ultimately stand. Further complicating the issue, the Labor Commissioner previously announced that she will issue revised minimum wage regulations in the fall of 2015.
What Should Nevada Employers Do Now?
If you are utilizing the lower-tier minimum wage for any of your employees, the safest and most conservative approach would be to reevaluate the affordability of the health insurance offered without reference to tips or gratuities received by employees. The safest and most conservative approach also would be for you to pay at least the top-tier state minimum wage ($8.25) to employees who have not elected to receive employer-provided health insurance coverage, as well as to those employees who have elected to receive employer-provided health insurance if you are unsure as to whether it satisfies the criteria of a “qualified” health insurance plan under Nevada law.
SHLC will continue to monitor the progress of the Hancock case and any appeal filed by the Labor Commissioner. SHLC previously has submitted a letter to the Labor Commissioner addressing a number of issues related to the two-tier minimum wage system including the impact of the Affordable Care Act (“Obamacare”) on the state minimum wage laws. A copy of the ruling in Hancock can be found here: https://goo.gl/uVLJiY.
If you need assistance with minimum wage law compliance, please do not hesitate to contact the attorneys in our Reno or Las Vegas offices.