The U.S. Department of Labor (DOL) will publish a proposed rule on March 29, 2019, to amend the Fair Labor Standards Act (FLSA) regulations regarding the regular rate of pay (RROP). Interested parties may submit comments on the proposal at www.regulations.gov in the rulemaking docket RIN 1235-AA24 by May 28, 2019. The proposed rule is not a departure or significant change from the current law but clarifies that employers may exclude certain perks from employees’ RROP.
Generally, the FLSA requires employers to pay non-exempt employees overtime pay of at least one and one-half times the RROP for hours worked in excess of 40 hours per workweek. The RROP is not necessarily the employee’s base hourly rate; rather, an employer must calculate the RROP by taking into account the employee’s total compensation for the workweek and dividing the total by the number of hours worked. Any amounts that an employer pays its employee in addition to the base wage, such as bonuses, shift differentials, and incentive payments, will increase the RROP and thus increase the amount of overtime pay.
According to the DOL, the current rules discourage employers from offering more perks to employees as it may be unclear whether those perks must be included in the calculation of RROP. The DOL’s proposed rule focuses primarily on clarifying whether certain kinds of perks, benefits or other miscellaneous items must be included in the RROP. Specifically, the proposed rule will confirm that employers may exclude the following from the RROP:
- the cost of providing wellness programs, onsite specialist treatment, gym access, and fitness classes, and employee discounts on retail goods and services;
- payments for unused paid leave, including paid sick leave;
- reimbursed expenses, even if not incurred “solely” for the employer’s benefit;
- reimbursed travel expenses that do not exceed the maximum travel reimbursement permitted under the Federal Travel Regulation System regulations and that satisfy other regulatory requirements;
- discretionary bonuses;
- benefit plans, including accident, unemployment, and legal services; and
- tuition programs, such as reimbursement programs or repayment of educational debt.
These items have been excludable from the RROP all along, but the proposed rule makes that clearer. The proposed rule also includes additional clarification about other forms of compensation, including payment for meal periods, “call back” pay, and others.
Although the proposed rule is not a material change from the current rule, it serves as an occasion for employers to revisit how they are calculating the RROP, and thus overtime pay, to ensure that they are doing it correctly. Improper calculation of the RROP that causes an underpayment in overtime pay can lead to significant liability.