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Employers may offer more perks, benefits with clarity on “regular rate” of pay

DOL clarifies which perks and benefits employers may exclude from a nonexempt (“hourly”) employee’s regular rate of pay, which is used in calculating overtime

Posted December 23, 2019

Without much fanfare, on December 12, 2019, the Department of Labor (DOL) issued a major announcement that impacts employers from coast-to-coast. In a news release, the DOL revealed a list of perks and benefits that employers do not have to include when figuring out an employee’s regular rate of pay.

Why is this a big deal? In a nutshell, this new rule gives employers much needed guidance on calculating pay. Because it makes things easier for employers to calculate wages (particularly what gets included in overtime pay), it opens the door for them to offer a wider variety of perks and benefits to employees.

Previously, employers were unsure about how to calculate the cost of perks and benefits when determining the regular rate. Thus, many employers simply avoided offering certain extras (like free gym memberships).

Under the FLSA, overtime pay must be calculated at one-and-one-half times an employee’s regular rate of pay. What goes into the regular rate of pay? Well, that’s been sticking point for employers for years, hence the excitement about this new rule.

Perhaps shadowed by other political happenings in the country currently, the DOL figuratively padded into the room like a little mouse with this big win (or piece of cheese) for both employers and employees. When does that ever happen at the federal level? (err … hardly ever).

This is the first major change to these regulations (the regular rate requirements) in more than 50 years! There should at least be a cake or something.

Now, armed with better information, employers may expand their benefit offerings to attract and retain more workers. Employees, in turn, may also reap the rewards.

The new rule states that employers may exclude the following perks and benefits from an employee’s regular rate of pay, meaning these don’t get counted toward overtime 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; and 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”;
  • certain sign-on bonuses and certain longevity bonuses;
  • the cost of office coffee and snacks to employees as gifts;
  • discretionary bonuses, by clarifying that the label given a bonus does not determine whether it is discretionary and providing additional examples 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 includes additional clarification on other forms of pay, like discretionary bonuses and “call-back” pay.

The new rule takes effect on January 15, 2020. Happy New Year, indeed!

This article was written by Michelle Higgins of J. J. Keller & Associates, Inc.

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