On December 16, the U.S. Department of Labor (“DOL”) published a Final Rule to clarify and update the regular rate regulations, 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 Final Rule marks the first significant update to the regulations governing the regular rate calculation in over 50 years.

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 final rule clarifies that employers may exclude the following perks and benefits from an employee’s regular rate of pay:

• 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;
• certain sign-on bonuses and certain longevity bonuses;
• bonafide meal periods (unless an agreement or actual course of conduct establishes that the parties have treated the time as hours worked);
• the cost of office coffee and snacks to employees as gifts; and
• contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.

The Final Rule also:

• 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”;
• provides 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;
• eliminates the requirement that “call-back” pay and other similar payments be “infrequent and sporadic” to be excludable from the regular rate calculation, but clarifies that the regularity of payments, alone, does not necessarily establish that such payments are prearranged; and
• clarifies that overtime premiums do not need to be made pursuant to a written contract or agreement to be excluded, but they must still be paid pursuant to some form of legitimate agreement or understanding.

The Final Rule will take effect 30 days after its publication in the Federal Register, on January 15, 2020.  More information about the final rule, including FAQs and a Fact Sheet, is available at https://www.dol.gov/agencies/whd/overtime/2019-regular-rate.