On March 28, 2019, the U.S. Department of Labor (DOL) announced a new proposed rule that would clarify that certain payments and benefits provided by employers do not factor in to employees’ “regular rate,” which is used to calculate overtime pay.
This latest announcement is on top of a flurry of recent activity from DOL in March 2019, including another proposed rule to increase the minimum salary threshold required for most “exempt” employees and three opinion letters on family and medical leave and wage and hour issues.
“Non-exempt” employees who are entitled to overtime under the Fair Labor Standards Act (FLSA) generally must be paid at least one and one-half times their “regular rate” of pay for all hours worked beyond 40 hours each workweek.
However, calculating the regular rate is complicated when considering whether bonuses, paid time off, travel reimbursement, and other forms of compensation and benefits must be included in the employee’s base pay for the purposes of calculating overtime. (Employers that fail to include any of these required payments into the regular rate may be liable for unpaid overtime.)
The proposed rule is intended to avoid discouraging employers from offering perks and benefits to employees by eliminating uncertainty as to whether such benefits must be included in the regular rate – by clarifying which types of benefits and payments are excluded. According to DOL, this proposed rule will bring the existing rules, which have not been updated for decades, in line with “today’s workplace practices.”
Specifically, DOL’s regulations would clarify that the following are excluded from an employee’s regular rate when calculating overtime:
The proposed rules will also clarify other issues, such as when meal periods and “on call” time must be paid.
Employers should keep in mind that this latest proposal is not the law yet and will not take effect until a final rule is implemented, a process which normally takes many months. While greater clarity in this area will be welcome, DOL’s current rules remain in effect for the time being.