The U.S. Department of Labor (DOL) is making significant changes to the regulations covering the regular rate of pay under the Fair Labor Standards Act (FLSA) for the first time in more than 50 years. The FLSA entitles most covered, nonexempt employees to receive overtime pay of at least one and one-half times the employee’s regular rate of pay for all hours worked over 40 in a workweek.

Definition of “Regular Rate”

Under the FLSA, “regular rate” includes all remuneration for employment paid to the employee, but excludes the following eight categories of payments:

  • Gifts and payments for special occasions
  • Payments for periods when no work is performed, such as vacation, and payments for expenses incurred in furtherance of the employer’s interest
  • Discretionary bonuses, payments to profit-sharing plans or savings plans that meet certain requirements, or certain talent fees
  • Contributions to a bona fide retirement or life, accident or health insurance plan
  • extra compensation provided by a premium rate paid for hours worked in excess of eight in a day, 40 hours in a workweek, or the employee’s normal work hours
  • Extra compensation provided by a premium rate paid for work performed on Saturdays, Sundays, holidays, or regular days of rest, or for sixth or seventh day pay
  • Extra compensation provided by a premium rate paid pursuant to a contract or collective bargaining agreement for work outside the employee’s normal workday
  • Value or income derived from employer-provided stock options, stock appreciation rights, or stock purchase programs if certain restrictions are met

New Rule, New Clarity

Calculating the regular rate

On Dec. 16, 2019 the DOL published its final rule, seeking to update the regular rate of pay regulations and bring them more in line with 21st Century pay practices, including state and local wage and hour laws. These newly updated regulations will go into effect on Jan. 15, 2020.

The final rule clarifies the following types of payments, benefits, and perks may be provided to employees but are not included in the regular rate of pay:

  • Loans or advances made by the employer
  • The cost of providing:
    • parking benefits
    • gym access, memberships, fitness classes or recreational facilities
    • wellness programs
  • Discounts on employer-provided retail goods and services
  • Tuition benefits and adoption assistance
  • Payments for unused paid leave
  • Payments for certain call-back pay penalties
  • Reimbursed expenses incurred on the employer’s behalf – including for cell phone plans, organization membership dues, credentialing exam fees, supplies, tools, materials, equipment or travel – where the amount of the reimbursement reasonably approximates the actual expense incurred
  • Gifts and special payments, such as:
    • Certain sign-on and longevity bonuses
    • Office coffee and snacks
  • Benefit plan contributions for death, disability, accident, retirement, unemployment, legal services, or other events that could create significant future financial hardship or expense

Further, the rule clarifies that a reimbursement for travel when done for the employer’s business is “per se” reasonable if it does not exceed the maximum reimbursement payment or per diem allowance under the Federal Travel Regulation System or IRS guidance.

Finally, although discretionary bonuses were clearly excluded from the regular rate of pay under the previous regulations, the final rule provides that a label given to a particular bonus does not determine whether the bonus is truly discretionary. Rather, a bonus will be deemed to be discretionary or nondiscretionary based on the operative facts.

For a full review of the changes, the final rule is available here.