The employer community awaits action by the DOL regarding its Spring 2019 proposed rules relating to the calculation of the “regular rate” for overtime purposes under the FLSA. These expected rules, which represent the first significant modifications to applicable regulations in more than 50 years, will provide important guidance to employers about whether certain perks and other payments to employees must be included in income for overtime calculations. According to DOL, the purpose of the proposed rules was not only to clarify the application of sometimes nebulous rules, but also to promote compliance with the FLSA and to encourage employers to provide additional and innovative benefits to workers without fear of consequences for the calculation of overtime.
Background: Under the FLSA, the regular rate that is used to calculate the overtime premium is to be based on “all remuneration for employment paid to, or on behalf of, the employee,” subject to certain exclusions set forth in the statute (see FLSA §7(e)). While these exclusions have been extensively litigated, they continue to cause confusion, prompting DOL to issue clarifying rules earlier this year.
The Proposed Rules: The rules that DOL published this year provide specific examples of bonuses, reimbursements and other perks that can be specifically excluded from the regular rate calculations:
- The cost of wellness programs, onsite specialist treatment, gym access, and fitness classes, as well as employee discounts on retail goods and services.
- Payments for unused paid leave (including sick leave) and for time that would not otherwise qualify as “hours worked,” such as meal periods (unless there is explicit agreement or established practice to the contrary).
- Reimbursed expenses, even if not incurred “solely” for the employer’s benefit.
- Reimbursed travel expenses (subject to certain limits and conditions).
- Discretionary bonuses, as illustrated in the proposed rules, with specific guidance that the label applied to the bonus would not be determinative of its “discretionary” nature.
- Benefit plans such as accident, unemployment, and legal services.
- Tuition reimbursement programs.
On Call Time: Lastly, DOL is expected to finalize its proposed modification to existing regulations concerning “on call” time, 29 C.F.R. §§778.221, allowing the exclusion of such payments so long as they are not so regular that they are essentially prearranged.