For the first time in more than 50 years, the U.S. Department of Labor (“DOL”) has updated its interpretation of the definition of “regular rate of pay” in the Fair Labor Standards Act (“FLSA”), which is used to calculate overtime premiums. Specifically, the Final Rule updates the forms of payment employers may include and/or exclude when determining overtime rates. The final rule is scheduled to take effect January 15, 2020.
Based on the Final Rule, employers may now exclude the following payments from an employee’s regular rate of pay:
- 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; and
- Contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.
In addition, the DOL provided the following clarification:
- Clarified that the label given to a bonus does not automatically make said bonus discretionary;
- Eliminated the restriction that “call-back” pay and similar payments must be “infrequent and sporadic” to be excluded from employees’ regular rate of pay; and
- Updated current regulations so that employers who use an authorized basic rate may exclude from the overtime computation any additional payment that would not increase total overtime compensation by more than 40 percent of the higher of the applicable local, state, or federal minimum wage for overtime workweeks in the period for which the employer makes the payment.
What Does This Mean For Employers?
Employers should audit their earnings codes used for nonexempt employees to determine whether any changes should be made. Overall, the new rule should reduce the risk of litigation and enable employers to provide more benefits without the fear of penalties by the DOL.
For more information on the DOL’s new Regular Rate of Pay Rule, please contact the attorneys at York Bowman Law, LLC.