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Pay & Leave Pay Systems

Notice No: 52

Date: September 20, 1996

Notice of OPM Operating Information

AGENCIES:  THIS NOTICE PROVIDES ADVANCE INFORMATION ABOUT THE INCREASE IN THE MINIMUM WAGE.

Heads of Departments and Independent Establishments:

  1. President Clinton signed the Small Business Job Protection Act of 1996, Public Law 104-188, on August 20,1996, to provide an increase in the minimum wage for American workers. Section 2104 amends the Fair Labor Standards Act and provides that effective October 1, 1996, employees shall not be paid less than $4.75 an hour, and effective September 1, 1997, employees shall not be paid less than $5.15 an hour. The enactment of the Small Business Job Protection Act of 1996 will improve the economic lives of millions of American workers. Within the Federal Wage System, the Small Business Job Protection Act of 1996 will affect primarily nonappropriated fund Federal Wage Systems employees.
  2. The minimum wage increase applies to all wage employees covered by sections 5342(a)(2) and 5348 of title 5, United States Code.
  3. All wage schedules issued pursuant to a wage survey under the authority of section 5343 of title 5, United States Code, are subject to this minimum wage increase. This minimum wage increase also applies to wage schedules produced by reference to schedules adjusted pursuant to wage surveys and to wage schedules that have been temporarily set aside from certain provisions of the Federal Wage Systems pending study by the Federal Prevailing Rate Advisory Committee.
  4. In accordance with section 532.205 of title 5, Code of Federal Regulations, no wage schedule, including a special schedule, may include any rate of pay less than the higher of the minimum rate prescribed by section 6(a)(1) of the Fair Labor Standards Act of 1938, as amended, or the highest State or local minimum wage rate in the local wage area which is applicable to the private industry counterparts of the single largest Federal industry/ occupation in the wage area. In addition, further upward adjustments of scheduled rates may be required under section 532.205(c), which mandates a minimum intergrade differential above the minimum wage.
  5. Wage schedule adjustments made because of statutory minimum wage increases are not affected by the annual pay cap limitations regularly imposed on the Federal Wage Systems by appropriations laws. Increases granted on the basis of higher minimum wage rates are in addition to the usual annual wage schedule adjustments.
  6. The Small Business Job Protection Act also restructures the statutory design of tip credits. The previous statutory approach was to calculate tip credit and minimum cash amounts employers may pay as percentages of the Fair Labor Standards Act minimum wage. The new law retains--but as a fixed dollar figure rather than as a percentage--the previous minimum cash amount ($2.13 per hour) employers could pay to tipped employees. If tips actually received are not sufficient, when added to $2.13, to total the new minimum wage of $4.75 (as of October 1, 1996) or $5.15 (as of September 1, 1997), the employer must also pay the additional difference to the tipped employee.

    Within the Federal Wage Systems, this change affects the special pay plan governing tip offsets for nonappropriated fund Federal Wage Systems employees classified as Waiter/ Waitress. (See 5 CFR 532.283.) Under these special schedules, a tip offset is the amount of money by which an employer, in meeting the legal minimum wage standard, may reduce a tipped employee's wage in consideration of tips received. The determination as to when and whether a tip offset is applied, and the amount applied, is made through negotiations between local nonappropriated fund management and the official representative of the local exclusive bargaining agent for the tipped employees. Where such employees are not represented by a union, the tip offset determination is made by local nonappropriated fund management. Nonappropriated fund activities are also required to apply State laws wherever the State laws are more beneficial to employees than the Fair Labor Standards Act. Guidance on this special pay plan in Subchapter S11-3 of the Office of Personnel Management Operating Manual, Federal Wage System-- Nonappropriated Fund, will be changed to reflect the Fair Labor Standards Act amendments in a future update.
  7. All wage schedule adjustments made in compliance with the increased minimum wage are effective on the date of the applicable Fair Labor Standards Act minimum wage rate.
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