Rewritten: The New Rule for Calculating the Overtime “Regular Rate”

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On December 12,2019, the U.S. Department of Labor announced a Final Rule that permits employers to more easily offer perks and benefits to their employees. The Final Rule is effective January 15, 2020.

The Final Rule marks the first significant update to the regulations governing regular rate requirements under the Fair Labor Standards Act (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.

Prior to this new Final Rule, employers were uncertain about the role that perks and benefits play when calculating the regular rate of pay. The new rule will clarify 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 to employees without risk of additional overtime liability. The following are eight categories of payments that may be excluded when calculating the 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, 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 about other forms of compensation, including payment for meal periods and “call back” pay. It can be viewed here and will take effect 30 days after its publication in the Federal Register.

The Department of Labor has provided additional information about the Final Rule, including FAQs and a Fact Sheet, at https://www.dol.gov/agencies/whd/overtime/2019-regular-rate.

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