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DOL proposes to clarify calculation of regular rate of pay for overtime purposes

New rules would exclude various benefits and perks

Ubezpieczenia zdrowotne i benefity pracownicze|Global Benefits Management|Całkowite Pakiety Wynagrodzeń

By Stephen Douglas , Rich Gisonny and Laura Rickey | May 14, 2019

The DOL has proposed to clarify which perks, benefits and other miscellaneous payments may be excluded from the regular rate of pay.

The Department of Labor (DOL) has issued proposed rules to clarify the definition of “regular rate” of pay for purposes of calculating overtime under the federal Fair Labor Standards Act (FLSA). The proposed rules clarify which perks, benefits and other miscellaneous payments may be excluded from the regular rate.

Many employers already exclude most or all of these benefits and perks from the regular rate of pay in their overtime calculations. Nevertheless, employers will want to review their current practices to determine whether any payroll-related changes will be required or advisable after the regulations are finalized.

Comments on the proposed regulations are due by May 28, 2019. [UPDATE: The comment period deadline has been extended to June 12, 2019.] There is no proposed effective date, and it will likely take several months for the DOL to review all comments and then issue the rules in final form

General discussion and observations

Under the FLSA, employers generally must pay covered nonexempt employees at least 1.5 times their regular rate of pay for hours worked in excess of 40 in a week. An employee’s regular rate includes all remuneration for employment, subject to certain exclusions. The proposed rules would clarify that the following payments are among the type that may be excluded:

  • The cost of wellness programs, onsite specialist treatment, gym access and fitness classes (whether onsite or offsite), and employee discounts on retail goods and services
  • Payments for unused paid leave, including paid sick leave (occasional payments for unused leave would be excluded as long as the payment roughly equals the employee’s normal earnings, and the payment is in addition to the employee’s normal compensation)
  • Reimbursed travel expenses that reasonably approximate the expense incurred
  • Pay for time that would not otherwise qualify as “hours worked,” including bona fide meal periods (unless the parties have treated the time as hours worked under an existing agreement or established practice)
  • Tuition programs, such as reimbursement programs or repayment of educational debt

In the proposed rules, the DOL included examples of “discretionary bonuses” that may be excluded from the regular rate, and confirmed that a bonus’s label does not determine whether it is discretionary. Such bonuses might include those awarded for unique or extraordinary efforts outside of established criteria, severance bonuses, bonuses for overcoming challenging or stressful situations, and employee-of-the-month bonuses.

The DOL also plans to provide examples of benefit plans, including accident, unemployment and legal services, that may be excluded from the regular rate of pay. The department specifically invites comment on other types of “modern” benefit plans that should be referenced as examples that may be excluded from the regular rate.

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