The determination of the regular rate of pay for employees who are non-exempt under the Fair Labor Standards Act (“FLSA”) and, therefore, eligible for time-and-one-half overtime pay for all hours worked over forty (40) in a week is a crucial and sometimes complicated one for employers under current law. In an effort to simplify that law, reflect the 21st-century workplace, and encourage employers to provide additional and innovative benefits without worrying about their inclusion in the regular and overtime rates of pay (or fear of litigation regarding same), the Federal Department of Labor (“DOL”) has issued new proposed clarifications and rules and requested any comments by June 12, 2019.
The clarifications are:
- That the cost of providing wellness programs, onsite specialist treatment, gym access and fitness classes, and employee discounts on retail goods and services may be excluded from an employee’s regular rate of pay;
- That payments for unused paid leave, including paid sick leave, may be excluded from an employee’s regular rate of pay;
- That reimbursed expenses need not be incurred “solely” for the employer’s benefit for the reimbursements to be excludable from an employee’s regular rate;
- That reimbursed travel expenses that do not exceed the maximum travel reimbursement permitted under the Federal Travel Regulation System regulations and meets other regulatory requirements may be excluded from an employee’s regular rate of pay;
- That employers do not need a prior formal contract or agreement with the employee(s) to exclude certain overtime premiums described in Sections 7(e)(5) and (6) of the FLSA; and
- That pay for time that would not otherwise qualify as “hours worked,” including bona fide meal periods, may be excluded from and employee’s regular rate unless an agreement or established practice indicates that the parties have treated the time as hours worked.
Similarly, the DOL proposes to clarify that truly discretionary bonuses in fact (not merely in label) may be excluded from the regular rate and submits some examples of same. The DOL also proposes to provide examples of accident, unemployment, and legal services benefit plans that will not be included in regular rates. As a final clarification, the DOL proposes that tuition reimbursement plans can be excludable under various provisions of the FLSA.
As to substantive changes to existing regulations, the DOL proposes to eliminate the requirement that “call-back” and similar pay be “infrequent and sporadic” in order to be excludable from regular rate. However, the requirement that such payments not be so regular that they amount to be pre-arrangements will remain. The DOL also proposes to update its “basic rate” regulations so that now employers using an authorized basic rate can make an additional payment to the employee as long as the total overtime computation if it were calculated as part of the regular rate would not increase by more than $2.90 per week.
For many employers, nothing will change with these proposed DOL regular rate clarifications/changes, but for those with existing or new benefits plans or compensation systems that implicate any of the topics above, please contact us.