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April 11, 2019

US Department of Labor Proposes Rule to Update and Clarify "Regular Rate" Requirements

On March 28, 2019, the US Department of Labor (USDOL) announced a proposed rule to amend existing overtime regulations under the Fair Labor Standards Act (FLSA) in order to “better define the regular rate for today’s workplace practices.” The proposed rule, if it becomes final, would clarify that certain payments and benefits provided by employers are excluded from the “regular rate” of pay, which is used to calculate overtime pay for non-exempt employees.

The FLSA generally requires that covered, non-exempt employees receive overtime pay of at least one and one-half times their regular rate of pay for all hours worked in excess of 40 hours in a workweek. The regular rate requirements, which have not been updated in over 50 years, define what forms of compensation should either be included in, or excluded from, the “time and one-half” calculation when determining overtime rates. An employee’s regular rate of pay includes all remuneration of employment, subject to eight statutory exclusions.

According to the USDOL, “[t]he proposed rule focuses primarily on clarifying whether certain kinds of perks, benefits, or other miscellaneous items must be included in the regular rate.” More specifically, the proposed rule seeks to clarify that employers may exclude the following from an employee’s regular rate of pay:

  • 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
  • Tuition programs, such as reimbursement programs or repayment of educational debt

The proposed rule also seeks to clarify whether other forms of compensation, such as payment for meal periods and “call-back” pay, must be included in the regular rate of pay. As to call-back pay and similar payments, the USDOL proposes to eliminate the restriction that such payments be “infrequent and sporadic” to be excludable from an employee’s regular rate, while maintaining that such payments must not be so regular that they are essentially prearranged. The USDOL further proposes to provide examples of discretionary bonuses that may be excluded from an employee’s regular rate of pay and to clarify that the label given a bonus does not determine whether it is, in fact, discretionary.

The USDOL expects the proposed rule “will encourage some employers to start providing benefits that they may presently refrain from providing due to apprehension about potential overtime consequences, which in turn might have a positive impact on workplace morale, employee compensation, and employee retention.”

The notice of proposed rulemaking was published on March 29, 2019, and comments must be submitted by May 28, 2019. Additional information from the USDOL’s website is available here.

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