New Year, New Regular Rate? DOL Clarifies & Updates “Regular Rate” Regulations

By: Attorney David A. Richie– Weld Riley, S.C.

The calendar just flipped to 2020, which means it is time to make New Year’s resolutions.  What these resolutions entail can vary greatly.  For many of us, it’s an extra effort to get to the gym more often.  For the U.S. Department of Labor, it was issuing a new Final Rule that clarifies and updates several regulations interpreting the “regular rate” requirements under the Fair Labor Standards Act (FLSA), which become effective on January 15, 2020.

As we know, the FLSA typically requires overtime pay of at least one and one-half times the employee’s “regular rate” for hours worked in excess of 40 per workweek.  But what exactly gets included in an employee’s regular rate when calculating overtime pay?  The FLSA defines the regular rate as “all remuneration for employment paid to, or on behalf of, the employee” –subject to eight exclusions established in section 7(e) of the Act.  When DOL first promulgated regulations addressing the regular rate – more than 60 years ago –compensation often consisted predominately of traditional wages, paid time off for holidays and vacations, and contributions to basic medical, life insurance, and disability benefit plans.  Since that time, the workplace and the law have evolved, but DOL has made only minor updates to the regulations since 1950.

As DOL points out in its Final Rule, employee compensation packages, including employer-provided benefits or “perks,” have evolved significantly.  For example, many employers now offer various wellness benefits, such as fitness classes, nutrition classes, weight loss programs, smoking cessation programs, vaccination clinics, and training or coaching to help employees meet their health goals.  Likewise, traditional benefits, such as sick leave, have evolved in the time since DOL first promulgated regular rate regulations.  For instance, instead of providing separate paid time off for illness and vacation, many employers have combined these and other types of leave into paid time-off plans.  In its Final Rule, DOL is updating the regulations to reflect these and other such developments in the modern workplace.

So, what exactly does the Final Rule say?  It focuses primarily on clarifying whether certain “perks” and other miscellaneous payments must be included in the regular rate calculation.  The Final Rule confirms that employers may exclude the following from an employee’s regular rate of pay:

  • the cost of providing certain parking benefits, wellness programs, onsite specialist treatment, gym access and fitness classes, employee discounts on retail goods and services, certain tuition benefits, and adoption assistance;
  • payments for unused paid leave, including paid sick leave or paid time off;
  • payments for certain penalties required under state and local scheduling laws;
  • reimbursed expenses including cellphone plans, credentialing exam fees, organization membership dues, and travel, even if not incurred “solely” for the employer’s benefit; and clarifies that reimbursements that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System or the optional IRS substantiation amounts for travel expenses are per se “reasonable payments;”
  • certain sign-on bonuses and certain longevity payments;
  • the cost of office coffee and snacks to employees as gifts;
  • discretionary bonuses, by clarifying that the label given a bonus does not determine whether it is discretionary and providing additional examples; and
  • contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.

In addition to the above clarifications, the Final Rule also made substantive changes to the regulations.  For instance, DOL eliminated the restriction that “call-back” pay and other payments similar to call-back pay must be “infrequent and sporadic” to be excludable from the regular rate calculation, while maintaining that such payments must not be so regular that they are essentially prearranged.  For more information on the Final Rule, check out DOL’s website here.

With these clarifications and updates to the regular rate provisions, it truly is a Happy New Year for all employers.