Updates to Regular Rate Calculation for Overtime Pay

December 16, 2019
Inside HR
HR Compliance
Compensation Planning
Read time: 2 mins

The Department of Labor (DOL) has clarified and updated a number of the regulations interpreting the regular rate requirements under the Fair Labor Standards Act (FLSA). The regular rate determines how much nonexempt employees covered by the FLSA receive in overtime pay.

The final rule marks the first significant update to the regulations governing regular rate requirements under the FLSA in over 50 years. Those requirements define what forms of payment employers include and exclude in the FLSA's "time and one-half" calculation when determining overtime rates.

The previous regulatory landscape left employers uncertain about the role that perks and benefits play when calculating the regular rate of pay. The new rule clarifies which perks and benefits must be included in the regular rate of pay, as well as which perks and benefits an employer may provide without including them in the regular rate of pay.

Specifically, the final rule clarifies that employers may offer the following perks and benefits without risk of additional overtime liability:

  • the cost of providing certain parking benefits, wellness programs, onsite specialist treatment, gym access and fitness classes, employee discounts on retail goods and services, certain tuition benefits (whether paid to an employee, an education provider, or a student-loan program), and adoption assistance;
  • payments for unused paid leave, including paid sick leave or paid time off;
  • payments of certain penalties required under state and local scheduling laws;
  • reimbursed expenses including cellphone plans, credentialing exam fees, organization membership dues, and travel, even if not incurred “solely” for the employer’s benefit; and clarifies that reimbursements that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System or the optional IRS substantiation amounts for travel expenses are per se “reasonable payments”;
  • certain sign-on bonuses and certain longevity bonuses;
  • the cost of office coffee and snacks to employees as gifts;
  • discretionary bonuses, by clarifying that the label given a bonus does not determine whether it is discretionary and providing additional examples; and
  • contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.

The Final Rule also includes additional clarification that the label given a bonus does not determine whether it is discretionary. Also, the final rule eliminates the restriction that “call-back” pay and other payments similar to call-back pay must be “infrequent and sporadic” to be excludable from an employee’s regular rate has been eliminated, while maintaining that such payments must not be so regular that they are essentially prearranged.

The final rule be viewed here and will take effect on January 15, 2020. In addition, the DOL has issued FAQs and a Fact Sheet.

Source: DOL.gov; CCH/Wolters Kluwer