Compliance Navigator

An employee’s regular rate of pay is used to calculate overtime compensation under the Fair Labor Standards Act (FLSA), which requires nonexempt employees to be paid time and one-half their regular rate of pay for all work hours exceeding 40 in a workweek. The regular rate includes all remuneration for employment except specific payments excluded by the FLSA such as expenses incurred on the employer’s behalf, discretionary bonuses, gifts, vacation pay, and other amounts. Unfortunately for employers, it is sometimes difficult knowing if certain perks and benefits paid to nonexempt employees should be included in their regular rate of pay when calculating overtime.

Well, on December 16, 2019 the U.S. Department of Labor (DOL) issued a final rule clarifying whether particular benefits should be included in an employee’s regular rate of pay. This final rule, which took effect January 15, 2020, states that employers may exclude the following perks and benefits from an employee’s regular rate of pay thus limiting the employer’s overtime liability:

General benefits

The cost of providing certain parking benefits, wellness programs, prizes of small value, flu vaccinations, onsite specialist treatment (e.g. massage therapy, personal training, chiropractic care), gym access and fitness classes, employee discounts on retail goods and services, tuition reimbursement, and adoption assistance.

Unused paid leave

Payments for unused leave including sick leave, vacation, and holiday pay.

Penalties

Penalties employers must pay under state and local laws when employees are not provided with the expected amount of work (e.g. show-up or reporting pay) or “predictability pay” when employees are scheduled to work with too little notice.

Expenses

Expense reimbursement for things such as cellphone plans, credentialing exam fees, membership dues, and travel expenses that don’t exceed the maximum travel reimbursement under the Federal Travel Regulation system or the optional IRS substantiation amounts for travel expenses.

Bonuses

Certain sign-on and longevity bonuses.

Free snacks

Complimentary office coffee and snacks for workers.

Discretionary bonuses

Although discretionary bonuses may be excluded from an employee’s regular rate of pay, the label employers give to bonuses does not determine whether it is discretionary. It is the terms of the law and the circumstances of the bonus that control.

Contributions

Contributions to benefit plans for accidents, unemployment, legal services, and other events that can cause future financial hardship or expense.

Call-back pay

Call-back pay or similar payments can be excluded from the regular rate of pay if they are infrequent and sporadic but may not be excluded if they are prearranged.

Review employees’ regular rate of pay

Under this new rule employers may provide these perks and benefits to nonexempt employees without including them when calculating overtime pay. Nevertheless, employers should review the final rule closely and revisit how they currently calculate their employees’ regular rate of pay to make sure they comply with these updated guidelines. And as always, if you have questions regarding the regular rate, overtime, DOL penalties, or other wage and hour issues, be sure to consult legal counsel.