On March 29, 2019, the Department of Labor (DOL) published proposed updates to regulations regarding what employers may exclude from employees’ regular rate of pay for purposes of calculating overtime. The Fair Labor Standards Act (FLSA) generally requires that employers pay nonexempt employees overtime pay of at least one and one-half times their “regular rate” of pay for time worked in excess of 40 hours per workweek.
The regular rate typically includes all remuneration for employment, but the FLSA also provides eight general exceptions to that rule, which are enumerated in 29 U.S.C. § 207(e). It has been decades, however, since the DOL updated the regulations that provide guidance and further instruction with respect to these exceptions. The impetus of the proposed changes to the regulations, as stated by the DOL, is “to provide clarity and better reflect the 21-st century workplace.”
The proposed updates to the regulations aim to provide clarification and illustrative examples to affirm that employers may exclude the following items when calculating an employee’s regular rate:
- Payments for unused paid leave, regardless of whether it is for vacation, sick leave, or holiday pay
- Payments for time that is not hours worked, including bona fide meal periods during which no work is performed
- Specialist treatment provided onsite, such as chiropractors, massage therapists, personal trainers, counselors, Employment Assistance Programs, or physical therapists
- Gym access, gym memberships, and fitness classes
- Wellness programs
- Discounts on retail goods or services
- Tuition and student loan repayment
- Certain types of “call-back” payments
The proposed changes also provide guidance on when payments for travel expenses may be excluded in calculating the regular rate. Current regulations require that the expenses must be “solely” for the employer’s benefit to be excludable. The proposed regulations eliminate that ambiguous language. Further, the proposed updates provide that compensation for travel expenses that do not exceed guidelines prescribed by the Federal Travel Regulation will be deemed per se reasonable.
In addition, the proposed changes offer helpful guidance with respect to excludable discretionary bonuses. While the proposed changes do not alter the definition for discretionary bonuses, they do provide new examples. Excludable bonuses include bonuses such as employee-of-the-month bonuses, bonuses to employees who made unique or extraordinary efforts that are not awarded according to pre-established criteria, severance bonuses, bonuses for overcoming stressful or difficult challenges, and other similar bonuses. However, to be excludable the fact and amount of payment must still be in the sole discretion of the employer until or near the end of the periods to which the bonuses correspond, and are not paid pursuant to any prior contract, agreement or promise causing the employee to expect such payments regularly.
Parties desiring to submit written comments to the proposed regulations must do so on or before May 28, 2019. Comments may be submitted, identified by Regulatory Information Number (RIN) 1235-AA24, by either of the following methods:
- Electronic Comments: Submit comments through the Federal eRulemaking Portal at http://www.regulations.gov/
- Mail: Address written submissions to Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, Washington DC 20210.