Key Notes:

  • Rule excludes certain employer-sponsored perks and benefits, including tuition benefits and paid leave cash-outs, from the regular rate of pay.
  • Rule clarifies exclusion of discretionary bonuses.

On December 16, 2019, the U.S. Department of Labor (DOL) published its final rule that substantially updates the “regular rate” of pay calculations for the first time in more than 50 years. The Fair Labor Standards Act (FLSA) requires that a non-exempt employee be paid “time and one-half” (1.5 times) the employee’s regular rate of pay, which the FLSA defines as “all remuneration for employment” divided by hours worked.

Regular Rate

The updated regulations clarify the items employers may exclude from the regular rate and overtime calculation, which include:

  • The cost of providing certain parking benefits, wellness programs, gym access and fitness classes, and employee discounts on retail goods and services.
  • Certain tuition benefits, whether paid to an employee, an education provider, or a student-loan program.
  • Payments for unused paid leave, including paid sick leave or paid time off.
  • Reimbursed expenses, including cellphone plans, credentialing exam fees, organization membership dues and travel, even if not incurred “solely” for the employer’s benefit.
  • Certain sign-on and longevity bonuses.
  • Benefit plans, including accident, unemployment and legal services.

The final rule also clarifies and provides examples of discretionary bonuses that may be excluded from the regular rate. Finally, the DOL eliminated the standard that call-back payments (additional payments employers make to workers they call back to work after their shifts have ended) must be “infrequent and sporadic” to be excludable from an employee’s regular rate. Rather, such pay must be included only if it is “anticipated” or “prearranged.”

Next Steps

The DOL says the final rule will save workers and businesses approximately $280 million in litigation costs incurred in disputes over regular rate calculations. Employers should consider consulting with employment counsel to assess their pay practices and overtime calculations and determine the cost-saving areas of exclusion that will be available when the rule takes effect on January 15, 2020.