On December 16, 2019, the U.S. Department of Labor (DOL) published a Final Rule on the calculation of the “regular rate of pay” under the Fair Labor Standards Act (FLSA). It will go into effect on January 15, 2020. The DOL initiated these revisions to address an increased use of employee benefit plans and “perks” offered to recruit and retain employee talent. The DOL adopted nearly all the terms of the Notice of Proposed Rulemaking (NPRM) issued March 29, 2019, with only a few differences.
The “regular rate of pay” addressed in the DOL’s revised rule pertains to the calculation of overtime pay under the FLSA. Pursuant to the FLSA, non-exempt employees must be compensated time and one-half their regular rate of pay for every hour over 40 worked in a workweek. Traditionally, it was unclear what, if any, benefits, bonuses, or gifts were to be included in this calculation. The Final Rule clarifies that the following benefits and “perks” can be excluded from the calculation of the regular rate of pay:
- Payments for unused paid leave, regardless of whether it is for vacation, sick leave, or holiday pay;
- Payments for time that is not hours worked, including bona fide meal periods during which no work is performed;
- Specialist treatment provided on-site (e.g. massage therapy, chiropractic care, personal training, Employment Assistance Programs, or physical therapy);
- Gym memberships or access to gyms and fitness classes;
- Wellness programs;
- Discounts on retail goods or services;
- Tuition and student loan repayment;
- Reimbursed expenses (e.g. cellphone plans, credentialing exam fees, membership dues, etc.);
- Certain sign-on bonuses and longevity bonuses;
- Cost of office coffee and snacks;
- Employer contributions to benefit plans related to events that could cause future financial hardship (e.g. accident, unemployment, legal services, etc.); and
- Reimbursed travel expenses, even if not incurred “solely” for the employer’s benefit, so long as the reimbursement for travel does not exceed guidelines by the Federal Travel Regulation or IRS substantiation amounts.
Other exclusions include:
- Discretionary Bonuses: Employers are permitted to exclude discretionary bonuses from the calculation of the regular rate of pay. The Final Rule specifies that a truly “discretionary” bonus is one that is given an employee at the sole discretion of the employer. The DOL includes examples of discretionary bonuses in the final regulations.
- Call-Back Pay: Call-back pay and other similar payments are allowed to be excluded from the regular rate of pay so long as such payments are “infrequent and sporadic” such that they are not deemed to be “pre-arranged” between employer and employee.
- Basic Rate: The Final Rule allows employers using a “basic rate” to exclude additional payments from overtime calculations, so long as the additional payments do not increase the total overtime compensation by more than 40 percent of the higher of the applicable local, state, or federal minimum wage. This exclusion is limited to certain circumstances.
The Final Rule presents some much needed clarity on common overtime pay issues. If you need further explanations, please contact any of the authors of this article.