Puerto Rico Wage Law Explained
The Puerto Rico Labor Transformation and Flexibility Act of January 26, 2017 (“Act 4-2017” or “LTFA”), made major changes to almost all existing employment laws in Puerto Rico, including those governing wage-and-hour, overtime pay, vacation and sick leave and some employee benefits.
Our overtime rights lawyers represent Puerto Rico employees who have been subjected to workplace wage and hour violations and take cases on a contingent fee basis – no fee if no recovery of backpay. If you believe you’ve been deprived of the compensation to which you’re legally entitled, please contact the Lore Law Firm.
Understanding Puerto Rico Wage and Overtime laws
Puerto Rico does have certain labor laws that differ from the federal Fair Labor Standards Act (FLSA), including a requirement for payment of daily overtime, as well as double time for certain overtime hours. Specifically, the applicable local law is the Puerto Rico Labor Transformation and Flexibility Act of January 26, 2017. Whichever law (local or federal) is more favorable to the worker will apply. In most instances, however, P.R. law will cover issues involving overtime pay and minimum wage.
The new Puerto Rico labor law does contain a “grandfather clause” stating that employees hired prior to January 26, 2017 “shall continue to enjoy the same rights and benefits they enjoyed before…” The following is a summary of the rights of the employees hired prior to the approval of the LTFA, which are grandfathered:
- Overtime Payment – Article 3.3 of the LTFA establishes that “any employer who employs or allows an employee to work overtime shall be required to pay such employee for each extra hour, at a rate of not less than one and one-half times the regular pay rate; provided, that the employees entitled to greater rights or benefits who were hired prior to the effective date of the ‘Labor Transformation and Flexibility Act’ shall maintain said rights or benefits.”
- Meal Period Penalty – Article 3.9 of the LTFA establishes that “any employer that employs or allows an employee to work during the meal period shall be required to pay said period or fraction thereof at a pay rate equal to one and one-half times the regular pay rate agreed on, provided that the employees who have the right to a pay rate higher than one and one-half times prior to the effective date of the ‘Labor Transformation and Flexibility Act’ shall maintain the same.”
- Day of Rest – Article 3.15 of the LTFA establishes that “any employer who employs or allows an employee to work on the day of rest provided in this Act shall be required to pay said employee for the hours worked during such day of rest at a compensation rate equal to one and one-half times the regular rates of pay agreed on, provided, that employees entitled to greater benefits prior to the effective date of the ‘Labor Transformation and Flexibility Act,’ shall keep said benefits.”
- Vacation Accrual – Article 3.18 of the LTFA establishes that “any employee who worked for an employer before the effective date of the ‘Labor Transformation and Flexibility Act,’ and who was entitled by law to monthly vacation and sick leave accrual rates higher than those provided in the ‘Labor Transformation and Flexibility Act,’ shall continue to enjoy such monthly leave accrual rates that applied to such employee before. This provision shall apply as long as he works for the same employer.”
- Christmas Bonus – Article 3.23 of the LTFA grandfathered the Christmas Bonus amount and the minimum number of hours an employee must work to be entitled to receive the bonus for employees hired prior to January 26, 2017. The minimum number of hours an employee must work to be entitled to receive the bonus for employees hired before January 26, 2017 is 700, and 1,350 for employees hired on or after January 26, 2017.
- Severance Amount – Article 4.3 of the LTFA grandfathered the severance amount with no cap for employees terminated without just cause who were hired before January 26, 2017. Employees hired on or after said date are subject to a different severance formula, which varies with years of service and are subject to a nine (9)-month severance cap.
Minimum Wage
Puerto Rico’s minimum wage increased from $7.25 to $8.50 effective January 1, 2022.
Additional increases are scheduled to take effect on July 1, 2023, when it will be raised to $9.50, and on July 1, 2024, with a raise to $10.50.
Puerto Rico’s Wage laws require that employees who work for tips must be compensated no less than $2.13 per hour in direct wages and receive at least the minimum wage rate per hour with wages and tips combined. If tips are not sufficient to bring wages to minimum wage, the employer shall pay the difference to the tipped employee.
Overtime Pay
Puerto Rico labor laws regarding the payment of overtime are more favorable to workers that the federal overtime laws and require:
- time and a-half the regular hourly rate be paid for all hours worked over 8 hours per day
- double time on statutory rest days;
- double time for hours over 40 per week
The new rules about when non-exempt employees will be paid overtime or other premium pay apply to all employees, whether employed before and after the new Act. The new rules about how much pay non-exempt employees receive for overtime or other premium pay apply only to employees hired after the new Act took effect.
The federal FLSA only requires employers to pay time and a-half for all hours worked over 40 per workweek, unless an employee is properly classified as exempt.
For minimum wage workers in Puerto Rico, the overtime pay rate amounts to $10.88 per hour (1.5 x $7.25).
Which Employees are Entitled to Overtime Pay
Most workers in Puerto Rico are entitled to overtime pay when they work more than 8 hours per day or 40 hours per week. In certain circumstances, however, there are exemptions.
Employees engaged in executive, administrative, or professional capacities (and paid at least $455 per week on a salary basis) are exempt from the overtime requirement. Note that
new minimum salary requirements for these overtime exemptions that take effect in January 2020 and increase the minimum salary threshold to $684 per week (or $35,568 annually) will
not likely apply to most workers in Puerto Rico when making the determination of whether they are classified as exempt or non-exempt from the overtime pay laws.
The DOL believes that the U.S. territories face unique economic challenges and that an increase in the salary level affects them differently than the States, and to promote special salary level consistency across U.S. territories, the Department also set a special salary level of $455 per week for CNMI, Guam, and the Puerto Rico.
Under the new overtime salary rules, employers may satisfy up to 10 percent of the special salary requirements ($45.50 per week for Puerto Rico, CNMI, Guam and the Puerto Rico, and $38 per week for American Samoa) with nondiscretionary bonuses, incentive payments, and commissions. Each pay period an employer must pay the exempt executive, administrative, or professional employee on a salary basis at least 90 percent ($409.50 per week for Puerto Rico, CNMI, Guam, and the Puerto Rico, and $342 for American Samoa) of the applicable special salary level. The remaining portion of the required special salary level (up to 10 percent) may be fulfilled through payment of nondiscretionary bonuses or incentive payments, so long as the payments are paid at least annually. Where larger bonuses are paid, however, the amount attributable toward the special salary level is limited to 10 percent of the required salary amount for the workweek.
There is a special rule for highly compensated employees (HCE) who pass a minimal duties test. Under the new rule, to be exempt as an HCE, an employee must receive total annual compensation of at least $107,432 and must also receive at least the new standard salary amount of $684 per week on a salary or fee basis. The special salary levels that apply to CNMI, Guam, and the Puerto Rico do not apply to the HCE exemption.
Misclassification of Independent Contractors
Misclassification occurs when a business treats its workers as independent contractors (or subcontractors) rather than employees to avoid legal obligations such as social security taxes, worker’s compensation, unemployment insurance and overtime pay.
While there are situations in which workers are legitimately running their own business and properly treated as independent contractors who are not entitled to receive overtime, employers are not allowed to mischaracterize employee roles to avoid paying overtime compensation.
Merely labeling a worker as an independent contractor, or even entering into a written agreement, is not enough to avoid the labor laws on overtime pay.
There are several
factors to be considered in determining if a worker in Puerto Rico is an employee or independent contractor (a/k/a 1099 employee). The LTFA creates an irrebuttable presumption that a person is an independent contractor if he/she:
- possesses or has requested an employer identification or employer social security number
- has filed income tax returns claiming to own a business
- the independent contractor relationship is established by written contract
- he/she is contractually required to have required licenses or permits, and
- and he/she meets certain tests evidencing that he/she has discretion over the engagement, including in the way the work is performed, its timing, the ability to do work for others, and the ability to hire/contract staff or other help.
If properly classified as an independent contractor under Puerto Rico law, workers are typically eligible for only the specific compensation bargained for in a contract.
Meal and Rest Breaks
The Puerto Rico Wage and Hour Laws do provide that certain employees are eligible to receive mandatory meal and rest periods by their employers of 1 hour, if work period is longer than 5 consecutive hours, to begin after end of 2nd but before beginning of 6th consecutive hour worked, except when workday will be completed in 6 hours or less, meal period may be waived.
An employer may not employ an employee for a work period of more than 10 hours per day without providing the employee with a second meal period, except that if the total hours worked is no more than 12 hours, the second meal period may be waived if the first meal period was not waived.
Time and a half pay required for work during meal hour or fraction thereof, except any employee entitled to a higher rate prior to 1/26/17 may continue to receive that higher rate.
By written agreement of the employer/employee, meal period may be shortened to not less than 30 minutes, and to not less than 20 minutes for croupiers, nurses, security guards, and anyone else authorized by the Puerto Rico Secretary of Labor. Such agreements remain valid indefinitely, and neither party may withdraw consent, without the consent of the other, until 1 year after agreements’ effectiveness.
The Puerto Rico meal and break law does not apply to administrators, executives, professionals, travel agents, labor union officials or organizers, certain drivers, domestic service employees, public sector employment, and certain employees covered by collective bargaining agreements.
The federal Fair Labor Standards Act does not require that an employer give employees any mandatory rest breaks or meal breaks.
Statute of Limitations
Puerto Rico’s statute of limitations for wage and hour claims is now 1 year under the LTFA versus 3 years under prior law.
The
deadline for filing an overtime claim under the FLSA, requires those seeking to recover unpaid back overtime wages file a lawsuit within two years from the date of the employer’s wage violation. So, a lawsuit filed today would be able to seek recovery of back overtime for only the prior 2 (sometimes 3) years.
As an example, suppose you believe that your employer has failed to pay you proper overtime wages since January 1, 2016. Waiting until June 1, 2019, to file your lawsuit means you are only allowed to seek unpaid wages from June 1, 2017, to June 1, 2019.
The statute of limitations may be extended to three years if an employer’s violation of the FLSA was willful. An FLSA violation is deemed willful if the employer knew that its conduct was prohibited by the FLSA or showed reckless disregard.
Penalties for Violations
Under federal law, employers who fail to pay proper overtime wages may be liable for up to double the amount of unpaid back wages plus costs and attorney’s fees incurred by employees. These cases can be brought by overtime pay lawyers on a class or collective basis on behalf of all workers who were subjected to the same illegal pay practices.
Lore Law Firm is On Your Side
At the Lore Law Firm, we represent salaried, hourly, and day-rate workers in an array of employment litigation matters, including unpaid overtime compensation claims in Puerto Rico. Our attorneys, and the Puerto Rico overtime law attorneys we associate with, are passionate about protecting the rights of workers and have helped recover millions of dollars in unpaid overtime wages for our clients.
Contact us for a free and confidential review of your situation.
