Legal Updates


DOL Releases Final Rule On Regular Rate

December 17, 2019

After announcing a Final Rule in September of this year increasing the salary basis level for overtime exemptions, the United States Department of Labor (DOL) is at it again with a another Final Rule. On December 13, 2019, DOL released a Final Rule governing the Fair Labor Standards Act’s (FLSA) regulations for calculating the regular pay rate for overtime pay. For employees that are covered by the overtime requirements of the FLSA (non-exempt employees), calculation of the employee’s regular rate is critical because employers are required to pay an employee 1.5 times their regular rate for all hours worked in excess of 40 hours in a workweek. This Final Rule allows employers to provide additional benefits to their employees without resulting in these benefits increasing a given employee’s regular rate of pay and increasing the wages due to an employee for overtime work.

The FLSA defines an employee’s “regular rate” as the sum of “all remuneration for employment paid to, or on behalf of, the employee” during a 40-hour workweek. 29 U.S.C. § 207(e). However, the FLSA also provides the following explicit exemptions from an employee’s regular rate:

1) Sums paid as gifts for holidays, special occasions, or as a reward for service. To qualify, the dollar amount may not be measured by, or dependent upon, hours worked, production, or efficiency.

2) Payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause. In other words, if an employee takes a paid sick day or vacation day, that day’s salary needs not be included when calculating his/her regular rate for that week.

3) Reasonable payments for expenses an employee incurs while furthering your company’s interests. These include travel expenses, expenses such as laundering uniforms, or buying supplies or materials on your company’s behalf.

4) Premium payments for overtime, or for working on weekends or holidays.

5) Benefits such as life insurance or health insurance.

Id.

Apart from these specific exemptions, employers have often been uncertain about how to treat other benefits offered to an employee when calculating their regular rate. The Final Rule seeks to clarify this confusion.

Under the Final Rule, employers may exclude the following from an employee’s regular rate:

1) 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;

2) Payments for unused paid leave, including paid sick leave or paid time off;

3) Payments of certain penalties required under state and local scheduling laws;

4) 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”;

5) Certain sign-on bonuses and certain longevity bonuses;

6) The cost of office coffee and snacks to employees as gifts;

7) Discretionary bonuses, by clarifying that the label given a bonus does not determine whether it is discretionary, and

8) Contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.

As a specific provision of the Final Rule, the DOL provided the following examples of discretionary bonuses that are excludable from an employee’s regular rate:

Examples of bonuses that may be discretionary include bonuses to employees who made unique or extraordinary efforts which are not awarded according to preestablished criteria, severance bonuses, referral bonuses for employees not primarily engaged in recruiting activities, bonuses for overcoming challenging or stressful situations, employee-of-the-month bonuses, and other similar compensation. Such bonuses are usually not promised in advance and the fact and amount of payment is in the sole discretion of the employer until at or near the end of the period to which the bonus corresponds.

29 C.F.R. § 778.211(d).

In addition, the Final Rule makes changes to existing regulations on “call-back” pay. Call-back pay is additional pay that an employee earns when they respond to a call-back notice after the employee’s “scheduled hours of work have ended and without prearrangement.” 29 C.F.R. 778.221(a). Under the old rule, this pay was excludable from an employee’s regular rate only of the call-back payments were “infrequent and sporadic.” The Final Rule removes the “infrequent and sporadic” requirement but still maintains that these payments must not be prearranged to be excludable from an employee’s regular rate.

The Final Rule will go into effect on January 15, 2020. In the meantime, employers should review their regular rate calculations to ensure they are utilizing the provisions of the Final Rule to operate most efficiently.

For questions regarding this article, please contact the author, Attorney Colin M. Lane (email: clane@strangpatteson.com; telephone: 844-626-0909 toll free), or your Strang, Patteson, Renning, Lewis & Lacy, s.c., attorney.

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