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January 15, 2020

DOL Issues Final Rule on "Regular Rate" Requirements

As an update to our prior alert, on December 12, 2019, the US Department of Labor (DOL) announced its final rule on overtime regulations under the Fair Labor Standards Act (FLSA) aimed at encouraging employers to offer certain “perks and benefits” to employees. The final rule, which becomes effective today, January 15, 2020, provides much-needed clarity to employers regarding whether perks, benefits, and other miscellaneous items can be excluded from the regular rate of pay for purposes of calculating overtime.

The FLSA generally requires non-exempt employees to be paid one and a half times the regular rate for all hours worked over 40 hours in a workweek. Subject to certain exclusions that, until now, were often difficult to decipher, the “regular rate” is defined as “all remuneration for employment paid to or on behalf of the employee” (29 U.S.C. § 207(e)). The final rule clarifies that employers may exclude “payments that do not depend on hours worked, services rendered, job performance, or other criteria that depend on the quality or quantity of the employees’ work.”

Some notable examples of perks and benefits that may be excluded from the regular rate of pay include, but are not limited to, the following:

  • The cost of providing certain parking benefits, wellness programs, on-site specialist treatments, gym access and fitness classes, employee discounts on retail goods and services, tuition benefits (whether paid to an employee, an education provider, or a student-loan program), and adoption assistance
  • Payments for unused paid leave, including paid sick leave and paid time off
  • Payments of certain penalties required under local and state scheduling laws
  • Reimbursed expenses, including cell phone plans, credentialing exam fees, organization membership dues, and travel, even if not incurred “solely” for the employer’s benefit (reimbursements that don’t exceed the maximum travel reimbursement under the Federal Travel Regulation system or the optional IRS substantiation amounts for travel expenses are “reasonable payments”)
  • Certain sign-on and longevity bonuses
  • The cost of office coffee and snacks to employees as gifts
  • Discretionary bonuses (the label “bonus” does not determine whether it is discretionary)
  • Contributions to benefit plans for accidents, unemployment, legal services, or other events that could cause future financial hardship or expenses

The DOL “expects that these changes will promote compliance with the FLSA; provide appropriate and updated guidance in an area of evolving law and practice; and encourage employers to provide additional and innovative benefits to workers without fear of costly litigation, resulting in a positive impact on workplace morale, employee compensation, and employee retention.”

We encourage employers to carefully evaluate their pay practices in respect to employees’ regular rate of pay calculations in accordance with the final rule. Additional information from the DOL about the final rule is available here and here.

If you have any questions regarding the content of this alert, please contact Rob Thorpe, counsel, at rthorpe@barclaydamon.com or Janae Cummings, law clerk, at jcummings@barclaydamon.com.

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