DOL offers advice on how to handle uniform costs

The Department of Labor (DOL) recently announced that two subsidiaries of the Walt Disney Co. have agreed to pay $3.8 million in back wages to 16,339 employees to ensure compliance with the Fair Labor Standards Act (FLSA). Among the FLSA violations found by the DOL’s Wage and Hour Division was that Disney resorts in Florida deducted a uniform or “costume” expense that caused some employees’ hourly rates to fall below the federal minimum wage. “Employers cannot make deductions that take workers below the minimum wage …,” said Daniel White, District Director for the Wage and Hour Division in Jacksonville.
The proper handling of uniforms is often a source of confusion for both payroll managers and employees. The question isn’t whether to dry clean or launder, but how to take uniforms or uniform allowances into account for purposes of the wage-hour rules and taxes.

Wage-hour rules

If a uniform is required by law, the employer, or the nature of the job, an employer must either (1) pay for the uniform directly or reimburse the employee for the out-of-pocket costs for the uniform or (2) pay the employee a minimum wage over and above the employee’s uniform costs. In other words, the financial burden of furnishing a uniform may not fall on the employee if it would reduce the employee’s net wages below the minimum wage.
The FLSA does not allow uniforms that are primarily for the benefit or convenience of the employer to be included as wages. Thus, if the wearing of a uniform is required by law, the nature of a business, or by an employer, the cost and maintenance of the uniform is a business expense of the employer. If the employer requires the employee to bear the cost, it may not reduce the employee’s wage below the $7.25 per hour minimum wage. Nor may the cost cut into overtime compensation required by the FLSA.
For example, if an employee is paid $7.25 an hour, the employer may not make any deduction from the employee’s wages for the cost of the uniform or require the employee to purchase the uniform. However, if the employee is paid $7.50 per hour for a 30-hour workweek, the employer can deduct up to $7.50 ($0.25 x 30 hours) from the employee’s wages.
The DOL says that there are no hard-and-fast rules in determining whether certain types of dress are considered “uniforms” [Field Operations Handbook, 30c12]. However, the DOL does provide some basic guidelines.

  • If an employer merely prescribes a general type of ordinary basic street clothing to be worn while working and permits variations in details of dress, the garments selected by the employees would not be considered uniforms.
  • Where an employer does prescribe a specific type and style of clothing to be worn at work, such clothing would be considered a uniform. For example, if a restaurant or hotel requires a tuxedo or a skirt and blouse or jacket of a specific or distinctive style, color, or quality, that’s a uniform. Other examples would include uniforms required to be worn by guards, culinary personnel, and hospital and nursing home staff.

Suppose an employer supplies a sufficient number of uniforms directly or reimburses an employee for the cost of a sufficient number, but the employee, on his or her own, decides to buy additional uniforms in excess of the number required. The DOL says that the employer is not required to cover the cost of excess uniforms.

Payroll taxes

A uniform that is not counted as wages for wage-hour purposes may be treated as taxable wages for payroll tax purposes. Employer-provided uniforms or uniform allowances are exempt from employment taxes only if the costs are ordinary and necessary expenses of the employer’s business and the uniforms are:

  • required as a condition of employment; and
  • not of a type adaptable to general or continued use.

The IRS has allowed tax-free treatment for uniforms worn by police officers, firefighters, letter carriers, nurses, bus drivers, railway workers, jockeys, baseball players, civilian faculty and staff members at a military school, and commercial fishermen. However, it says that the white hats, shirts, overalls, and shoes worn by painters are taxable.
To qualify for tax-free treatment, uniform allowances must be paid under an accountable plan that makes payments separate from regular wages or that specifies the amount of each payment when wages and uniform allowances are combined. The plan must also require the return of any excess to the employer. (U.S. Department of Labor, Wage-Hour Division News Release, 3/17/2017.)
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