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DOL issues proposed rules on what to include in overtime pay

Posted March 29, 2019

For the first time in over 50 years, the U.S. Department of Labor (DOL) is looking to update the regulations governing regular rate requirements under the Fair Labor Standards Act (FLSA). The FLSA generally requires overtime pay of at least one and one-half times the regular rate of pay for hours worked in excess of 40 hours per workweek. Regular rate requirements define what forms of payment employers include and exclude in the “time and one-half” calculation when determining workers’ overtime rates. An employee’s regular rate includes all remuneration for employment, subject to eight exclusions outlined in the FLSA.

Under current rules, employers are discouraged from offering more perks to their employees as those perks may be vaguely defined in calculating an employees’ regular rate of pay. The 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 Department proposes clarifications to confirm that employers may exclude the following from an employee’s regular rate of pay:

  • The cost of providing wellness programs, onsite specialist treatment, gym access and fitness classes, and employee discounts on retail goods and services;
  • Payments for unused paid leave, including paid sick leave;
  • Reimbursed expenses, even if not incurred “solely” for the employer’s benefit;
  • Reimbursed travel expenses that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System and that satisfy other regulatory requirements;
  • Discretionary bonuses, by providing additional examples and clarifying that the label given a bonus does not determine whether it is discretionary;
  • Benefit plans, including accident, unemployment, and legal services; and
  • Tuition programs, such as reimbursement programs or repayment of educational debt.

The DOL also proposes two substantive changes to the existing regulations. First, the Department proposes to eliminate the restriction that “call-back” pay and other payments similar to call-back pay must be “infrequent and sporadic” to be excludable from an employee’s regular rate, while maintaining that such payments must not be so regular that they are essentially prearranged.

Second, the DOL proposes an update to its “basic rate” regulations, as an alternative to the regular rate under specific circumstances. Under the current regulations, employers using an authorized basic rate may exclude from the overtime computation any additional payment that would not increase total overtime compensation by more than $0.50 a week on average for overtime workweeks in the period for which the employer makes the payment. The proposed rule would update this regulation to change the $0.50 limit to 40 percent of the federal minimum wage — currently $2.90.

The proposed rule is designed to reflect changes that have occurred over the last 50 years to compensation and benefits, and related laws and practices.

Interested parties may submit comments on the proposed rule on or before 60 days after March 29, 2019.

This article was written by Darlene M. Clabault, SHRM-CP, PHR, CLMS, of J. J. Keller & Associates, Inc.

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