On March 28, 2019, the U.S. Department of Labor (DOL) released a proposed rule to amend the regulations at 29 CFR Part 778 to clarify and update the “regular rate” requirements under section 7(e) of the Fair Labor Standards Act (FLSA), 29 USC §207(e), focusing on the types of compensation and benefits that employers must include in the overtime calculation.
The FLSA requires that employers pay non-exempt employees overtime at 1.5 times their regular rate for all hours worked over 40 in a workweek. The regular rate is not just an employee’s hourly rate of pay, but rather includes “all remuneration for employment”– unless specifically excluded by section 7(e) of the FLSA.
Examples of types of pay that must be included in the regular rate in addition to base hourly wages include non-discretionary bonuses, commissions and shift differentials. The FLSA also excludes some types of compensation from the regular rate, such as vacation or holiday pay, the cost of health insurance, employer contributions to retirement accounts, and reimbursements for business expenses. These regulations, which have seen only minor updates since 1968, provide additional guidance on the types of compensation included and excluded from the regular rate and overtime calculation.
The DOL is proposing to confirm that the following types of employer-provided benefits may be excluded from the regular rate of pay:
- Wellness benefits, including gym memberships, fitness classes and on-site specialist treatment;
- Discounts on retail goods and services;
- Payouts to employees of unused vacation and sick leave;
- Accident, unemployment and legal services benefits; and
- Tuition reimbursement and repayment of student loans.
The DOL recognizes that, without clarity with respect to whether or not overtime is due on these perks, employers may be discouraged from offering these benefits to employees. In fact, employers have already faced class and collective actions alleging they should have paid overtime on the value of employee discounts and the repayment of student loans. The DOL’s proposal should reduce the risk of such “no good deed goes unpunished” lawsuits.
The DOL also proposes to clarify that payment for hours not worked, including payment for bona fide meal periods and certain types of “call-back” pay are excludable, and that business expense reimbursements may be excludable even if not “solely” for the benefit of the employer.
The DOL has not proposed any changes to the definition of an excludable discretionary bonus (as opposed to a non-discretionary bonus on which employers must pay overtime). However, the agency has proposed some new examples of discretionary bonuses that are excludable, including bonuses paid to employees who make unique or extraordinary efforts that are not awarded according to pre-established criteria, severance bonuses, bonuses for overcoming challenging or stressful situations, and employee-of-the-month bonuses.
The Notice of Proposed Rulemaking (NPRM) will be published in the Federal Register on March 29. Comments to the NPRM are due by May 28, 2019, and can be submitted at www.regulations.gov, search for RIN number 1235-AA24. You can also contact the authors with comments on the proposed regulations.
Tammy McCutchen is chair of the Federalist Society's Labor and Employment Law Practice Group Executive Committee. This post was originally written for her law firm Littler Mendelson P.C. here and shared with her permission.