News & Announcements

Changes Ahead! Updates to Regular Rate of Pay for Overtime Calculation

Posted Tuesday, April 9, 2019 6:28 am

The regulations governing the calculation of an employee’s regular rate of pay could change for the first time in more than 50 years.  On March 28, the U.S. Department of Labor (“DOL”) published a proposed rule to clarify and update regular rate requirements, which define what forms of payment employers include in the “time and one-half” calculation when determining workers’ overtime rates under the Fair Labor Standards Act (“FLSA”).

The FLSA requires employers to pay nonexempt employees overtime pay of at least one and one-half times their regular rate of pay for hours worked in excess of 40 hours per workweek.  Generally, regular rate includes an employee’s hourly rate plus certain other types of compensation.  The DOL regulations also expressly exclude some types of compensation.

The proposed rule provides that employers may exclude the following from an employee’s regular rate of pay:

  • Payments for unused paid leave, regardless of the type of leave;
  • Payments for time that would not otherwise qualify as “hours worked,” including bonafide meal periods (unless an agreement or established practice indicates the parties have treated the time as hours worked);
  • The cost of providing onsite specialist treatment, gym access and fitness classes, wellness programs, employee discounts on retail goods and services, and certain tuition programs;
  • Reimbursed expenses, even if not incurred “solely” for the employer’s benefit; and
  • Benefit plans, including accident, unemployment, and legal services.

The new rule would also:

  • Clarify that payments for employees traveling on their employer’s business are per se reasonable if they are at or beneath the maximum amounts reimbursable under the Federal Travel Regulation and satisfy other regulatory requirements;
  • Eliminate the requirement that “call-back” pay and other similar payments be “infrequent and sporadic” to be excludable from the regular rate calculation;
  • Provide examples of discretionary bonuses that are excludable from the regular rate calculation and clarify that the label given a bonus does not determine whether it is discretionary; and
  • Clarify that employers do not need a prior contract or agreement with the employee to exclude certain overtime premiums.

Comments on the proposed rule should be submitted electronically at www.regulations.gov, in the rulemaking docket RIN 1235-AA24, and must be submitted by 11:59 pm on May 28, 2019 in order to be considered.

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