On March 28, 2019, the United States Department of Labor (“DOL”) issued a Notice of Proposed Rulemaking announcing proposed updates to the rules that govern how employers calculate overtime payments under the Fair Labor Standards Act (“FLSA”). As a reminder, the FLSA requires employers to pay additional compensation to non-exempt employees for work that exceeds forty hours in a work week. Overtime is paid at a rate of time-and-one-half, usually using an employee’s “regular rate” of pay. The “regular rate” is a statutorily-defined term that includes all forms of remuneration paid by the employer in exchange for employment, subject to certain exclusions set forth in 29 CFR Part 778. The DOL’s last comprehensive update to this rule was in 1968. The DOL’s proposed changes seek to clarify the regular rate exclusions in the context of today’s workplace and thereby encourage employers to provide additional benefits to their employees.

The proposed changes include clarification that the following are properly excluded when computing an employee’s regular rate of pay (and therefore are not factored into that rate when computing the 1.5x overtime rate):

  • An employer’s cost of providing wellness programs (g., health risk assessments, biometric screenings, vaccination clinics, nutrition and weight loss programs, smoking cessation programs, and health coaching); onsite specialist treatments (e.g., chiropractors, massage therapists, personal trainers, counselors, EAPs, or physical therapists); gym and fitness memberships; and employee discounts on the employer’s goods and services
  • Payments to employees for unused paid leave, including paid sick leave (whether such payments are made in the pay period in which the employee forgoes the leave or in some other pay period in a lump sum)
  • Reimbursed business expenses that are incurred for the mutual or combined benefit of employer and employee (versus, those “solely” for the employer’s benefit)
  • Reimbursed business travel-related expenses, such as flights and living expenses, that meet certain regulatory requirements
  • Discretionary bonuses, when not expected regularly
  • Tuition reimbursement and debt repayment programs
  • Payments for bona fide meal periods, which are not considered hours worked unless agreed upon by the parties

The proposed rule changes also include additional examples of the types of employee benefit plans that would be excluded from the regular rate calculation, such as accident, unemployment, and legal services, provided these benefits meet other regulatory requirements of an excluded “benefit plan.” The Department’s notice specifically invites comment on this modification to determine whether other types of benefit plans should be included as examples. Note, however, that the proposed changes also include a new statement that examples provided in Part 778 (both old and new) are not an exhaustive list of permissible or impermissible exclusions from overtime rate calculation.

The proposed changes additionally include a revision to the section excluding “show up” pay (i.e., pay made in addition to pay for hours worked when the employer provides less than a set minimum number of work hours), “call back” pay (i.e., additional compensation paid to employees for showing up to work to perform extra work after regularly scheduled hours have ended), and similar types of pay. This change would replace the requirement that such categories of work hours be “infrequent and sporadic,” with the statement that they must simply be “without prearrangement.”