New Department of Labor Regular Rate of Pay Rule Effective January 15, 2020
On January 15, 2020, a new U.S. Department of Labor (“DOL”) Rule will go into effect that clarifies the perks and benefits to include and exclude when calculating employees’ regular rates of pay pursuant to the Fair Labor Standards Act (“FLSA”). The regular rate is used to determine a non-exempt employee’s overtime pay. The FLSA typically requires employers to pay employees an overtime rate of one and a half times their regular rate.
While the DOL has taken the consistent position that regular rates include more than just cash wages, the DOL last issued formal guidance over fifty years ago, when fringe benefits were typically limited to paid time off and health insurance. In the years since, the standard portfolio of perks and benefits has expanded to include everything from cell phone plan and gym membership reimbursements to pretax vouchers for parking and public transportation expenses.
DOL Wage and Hour Division Administrator Cheryl M. Stanton explained in a press release that the new Rule “provides clarity that allows employers to provide more benefits to their employees without unknown overtime consequences or litigation.” Stanton added, “Allowing employers to offer more perks at work provides a positive path forward for employers and employees alike.”
The Rule allows employers to exclude the following when calculating an employee’s regular rate of pay:
- The costs of employer-subsidized parking benefits, wellness programs, onsite specialist treatments, health club memberships, retail discount programs, certain tuition benefits, and adoption assistance;
- Payouts for unused paid leave, including sick leave and general paid time off (“PTO”);
- Penalty payments to employees for violations of state and local “scheduling laws”;
- Expense reimbursements for cell phone plans, employment-relevant credentialing exam fees, organization membership dues, and job-related travel, whether or not incurred “solely” for the employer’s benefit;
- “Sign-on” and “longevity” bonuses under select circumstances;
- Incidentals like office coffee and snacks;
- Bona fide discretionary bonuses; and
- Benefit plan contributions related to accidents, unemployment, legal services, or other events that could cause future financial hardship or expense.
Additionally, the Rule changes the requirement that “call-back” pay or other similar pay must be “infrequent or sporadic” to be excludable from an employee’s regular rate. Call-back pay is extra compensation for employees who are unexpectedly called back to work after their scheduled shifts have ended – often in “emergency” situations. However, such payments may not be pre-arranged, which the DOL defines as compensation for work that the employer anticipated and, therefore, could have formally scheduled.
The Rule further clarifies that payment for bona fide meal periods may be excluded from regular rate of pay unless the pertinent facts establish that the parties have treated compensated bona fide meal periods as hours worked.
Employers should be mindful that while the Rule resolves many longstanding ambiguities with regard to the calculation of regular rates, it is not free from nuances or counterintuitive distinctions. For example, while employer-subsidized parking benefits may be excluded when calculating employee pay rates, “commuter subsidies,” like public transportation vouchers, cannot. In addition, “sign-on” bonuses are only excludable when they are given unconditionally; sign-on bonuses with “clawback” provisions must be included in employees’ regular and overtime pay rates.
Stay tuned to Stevens & Lee’s Alerts and Newsletters for further updates as employee rights and employer obligations under federal, state, and local wage and hour laws continue to change. In the meantime, if you have any questions about how this, or any other, labor and employment law development may affect your business, please contact Jennifer A. Ermilio, Alexander V. Batoff or the Stevens & Lee attorney with whom you regularly work.
This News Alert has been prepared for informational purposes only and should not be construed as, and does not constitute, legal advice on any specific matter. For more information, please see the disclaimer.