Department Of Labor Issues Final Rule On Regular Rate Exclusions From Overtime Calculations

By Eric Hemmendinger - Shawe Rosenthal LLP

December 12, 2019

On December 12, 2019, the U.S. Department of Labor (DOL) announced a revised interpretation listing payments that can be excluded from the “regular rate” used to compute overtime pay for non-exempt employees under the Fair Labor Standards Act. The DOL also issued a Fact Sheet and Highlights on this revised interpretation.

Under the FLSA, employees must be paid 1.5 times their “regular rate” for hours in excess of 40 per week.  The regular rate includes not only the employees’ base hourly rate, but also all other forms of compensation, subject to eight exclusions listed in the FLSA.  In the revision, the DOL expands and clarifies the list of perks and benefits that do not have to be included in the regular rate, i.e., that may be provided without increasing the overtime rate.  These include:

•    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 (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 or paid time off;
•    payments of 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 bonuses;
•    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.

Also, the DOL eliminates the requirement that “call-back” pay and other payments similar to call-back pay must be “infrequent and sporadic” to be excludable from an employee’s regular rate, while maintaining that such payments must not be prearranged.