By Megan Erickson Moritz
On March 28, 2019, the U.S. Department of Labor (DOL) announced another proposed rule to update regulations under the Fair Labor Standards Act
(FLSA). The proposed rule would amend 29
CFR part 778 to revise the “regular rate” requirements under section 7(e) of
the FLSA, 29 U.S.C. § 207(e).
Under the default rule for calculating required overtime premium, employers must pay 1.5 times the “regular rate” of pay for all hours worked beyond
40 in a workweek -- by dividing total hours worked by total pay for each workweek. Under the FLSA, an
employee’s regular rate pretty much includes all pay an employee earns (unless specifically excluded under the
statute) – which can include much more than just his or her base hourly
rate. For example, most
bonuses, commissions, incentive pay, shift premiums, and other benefits generally
need to be included in the regular rate.
This often complicates overtime calculations (especially quarterly or annual bonuses, which can require after-the-fact calculation of additional overtime), and can dissuade employers
from offering perks to non-exempt employees.
According to the DOL, the new “proposed rule focuses primarily on
clarifying whether certain kinds of perks, benefits, or other miscellaneous
items must be included in the regular rate. Because these regulations have not
been updated in decades, the proposal would better define the regular rate for
today’s workplace practices.”
The good news for employers:
the DOL says it intends to “encourage employers to provide additional
and more creative benefits without fear of costly litigation.” The proposed
rule aims to clarify when unused paid leave, bona fide meal periods, “call back”
pay, reimbursements, benefit plans, and other ancillary benefits may be
excluded from the overtime calculation. Specifically, the DOL proposes that the
regulations confirm that employers may exclude the following kinds of benefits
from an employee’s regular rate:
- Wellness programs, such as onsite specialist treatment, gym access and fitness classes,
- Employee discounts on retail goods and services;
- Payments for unused paid leave, including paid sick leave;
- Benefit plans, such as accident, unemployment, and legal services,
- Tuition reimbursement or student debt repayment; and
- Certain reimbursed expenses.
Most bonuses will still
need to be included in the overtime rate calculation. However, the DOL’s proposed rule attempts to elaborate
on the types of bonuses that are and are not discretionary (and therefore,
excludable) -- hopefully offering a little more clarity for employers.
The Notice of Proposed
Rulemaking was published on March 29, 2019, and the agency is accepting public
comments through May 28, 2019.
If you have any
questions about the DOL's proposal, or other wage and hour questions, please
contact Megan Moritz (moritz@brownwinick.com) or another
member of the BrownWinick Employment Practice Group.
