The Department of Labor released a final rule that codifies a majority of the changes it proposed to the “regular rate” regulations earlier this year. These changes will take effect on January 15, 2020.
As discussed in our prior alert, in March, the DOL announced a proposed rule intended to update the “regular rate” requirements. The regular rate, which is used to calculate overtime pay for nonexempt employees under the FLSA, includes “all remuneration for employment,” with certain exceptions. Qualifying employees are entitled to overtime at 1.5 times the regular rate. According to the DOL, employers have been reluctant to offer more modern perks like gym memberships, employee discounts on retail goods and services, and tuition reimbursement out of apprehension that the cost of administering these programs would be considered a part of the regular rate calculation.
The final rule confirms that the cost of providing gym benefits and fitness classes need not be included in the regular rate. Similarly, the DOL rule reinforces that the cost of employer provided wellness programs like nutrition classes and smoking cessation programs are not a part of the regular rate. Employee discounts and tuition–reimbursement programs are also officially excluded so long as they are not tied to an employee’s hours worked. Even certain discretionary bonuses, like “employee-of-the-month” bonuses or bonuses for overcoming stressful or difficult challenges, are excludable if both the fact that the bonus is to be paid and the amount are determined at the sole discretion of the employer, if the bonus occurs at or near the end of the period to which the bonus corresponds, and the bonus is not paid pursuant to any prior agreement. This correlates to the DOL’s clarification that neither the label, nor the reason the bonus is paid, conclusively determine whether a bonus is, in fact, discretionary.
The rule also settles that payments to employees for unused leave time, including sick time as well as payments for working on holidays that are in addition to pay for hours worked on the holiday, are excluded from the regular rate. Similarly, the final rule clarifies that meal periods should not be included in the regular rate calculation.
The DOL’s rule further endorses that “call-back” pay and other payments similar to call-back pay (like “clopening” pay, “right to rest” pay and “predictability” pay), as mandated by several state and local laws, need not be “infrequent or sporadic” to be excluded from the regular rate, but such payments must not be so regular that they are essentially prearranged. By contrast, “on call pay” for employees who are not called in to work—but, are scheduled for an on-call shift—is part of the regular rate if the payments are “compensation for performing a duty involved in the employee’s job.”
Finally, this rule clarifies that certain reimbursed expenses including cellphone plans, credentialing exam fees, organization membership dues, and travel (even if not incurred “solely” for the employer’s benefit) may be excluded from the employee’s regular rate.
