This month, the U.S. Department of Labor ("DOL") announced a Final Rule clarifying and modifying the types of compensation to be included in employees’ "regular rate of pay" for overtime purposes under the Fair Labor Standards Act ("FLSA"). The DOL’s Rule changes represent the first major update in over 50 years to FLSA regulations governing regular rate of pay requirements.
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.
The Department clarifies the regulations to confirm that employers may exclude the following from an employee’s regular rate of pay:
- certain sign-on bonuses and certain longevity bonuses;
- payments for unused paid leave, including paid sick leave or paid time off;
- benefits including parking, wellness programs, treatment by onsite specialists, gym and fitness classes, employee discounts on retail goods and services, certain tuition benefits, and adoption assistance;
- payments of certain penalties required under state and local scheduling laws;
- office coffee and snacks provided to employees as gifts;
- contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense; and
- reimbursements for cellphone plans, credentialing exam fees, organization membership dues, and travel even if not incurred "solely" for the employer’s benefit.
The rule also clarifies when a bonus is considered "discretionary," and thus excluded from an employee’s regular rate of pay, through fact-based examples. Finally, the Rule eliminates the FLSA’s requirement that "call-back" pay be "infrequent and sporadic" and modifies the "basic rate" calculation that is used as an alternative to the “regular rate” calculation in certain circumstances. The Rule was published on December 16, 2019, and will go into effect on January 15, 2020. The DOL’s Fact Sheet on the Rule changes can be viewed
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