On December 12, 2019, the U.S. Department of Labor announced its first significant update to the “regular rate” requirements under the Fair Labor Standards Act (FLSA) in more than 50 years. These “regular rate” requirements are important and tell employers what to include and exclude when determining an employee’s overtime rate. The new rule, which makes it much easier for employers to properly compute overtime payments, will take effect on January 15, 2020.
FLSA provides that a non-exempt employee’s overtime must be calculated at one-and-a-half times the employee’s “regular rate of pay.” The FLSA defines “regular rate of pay” to include “all remuneration for employment paid to, or on behalf of, the employee” except for certain exclusions (i.e. gifts, reimbursements, personal contributions, health insurance, holiday pay, etc.). However, prior to this new rule, employers were left questioning which fringe or other benefits could or should be excluded from the overtime calculation.
In brief summary, the Department of Labor now clarifies that the following list of payments may be excluded in the overtime calculation:
- Costs of certain parking benefits, wellness programs, onsite specialist treatment, gym access and fitness classes, employee discounts on retail goods and services, certain tuition benefits, and adoption assistance;
- Payments for unused paid leave (including paid sick leave or PTO);
- Payments of certain penalties under state and local scheduling laws;
- Reimbursed expenses, including cell phone plans, credentialing exam fees, membership dues and travel, even if not incurred solely for employer’s benefit. However, the Board does clarify that reimbursements that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System or IRS substantiation are “reasonable” to include;
- Certain sign-on and longevity bonuses;
- Costs of office coffee and snacks to employees;
- Discretionary bonuses; and
- Contributions to benefit plans for accident, unemployment, legal services or other events that could cause future hardship or expense.
In light of this new guidance, employers should review how they currently calculate overtime for employees. As these things may now be excluded from overtime payments, employers may also want to reconsider employment packages for, and certain perks and benefits offered to, employees.
Finally, employers should note that while the new rule may adjust what is included and excluded in the overtime calculation, it does not change how the overtime calculation is computed. Despite the regularity at which the employee is paid, regular rate of pay and overtime should be calculated on an individual workweek basis.
KJK publications are intended for general information purposes only and should not be construed as legal advice on any specific facts or circumstances. All articles published by KJK state the personal views of the authors. This publication may not be quoted or referred without our prior written consent. To request reprint permission for any of our publications, please use the “Contact Us” form located on this website. The mailing of our publications is not intended to create, and receipt of them does not constitute, an attorney-client relationship. The views set forth therein are the personal views of the author and do not necessarily reflect those of KJK.