On December 16, 2019, the U.S. Department of Labor (DOL) published its first significant revision since 1968 to its interpretation of the calculation of the "regular rate" under the Fair Labor Standards Act (FLSA).1 The regulations address whether certain fringe benefits must be included in calculating an employee's regular rate for overtime purposes. With the publication of this final rule, the DOL seeks to not only provide clarity as to what is excluded from the regular rate, but also update regulations to better reflect the 21st-century workplace.
The DOL published a Notice of Proposed Rulemaking (NPRM) underlying the new regular rate rule on March 29, 2019. Comments to the proposed rule were submitted by small business owners, individual workers, unions, and professional associations. In response to those comments, the DOL made some modifications to the proposed rule before adopting it.
The final rule, which becomes effective on January 15, 2020, will specifically exclude the following benefits or "perks" from an employee's regular rate of pay:
- Payments for unused paid sick leave or paid time off.
- Certain signing and longevity bonuses.
- Reimbursement for expenses such as cellphone plans, credentialing exam fees, organization membership dues, and travel, even if not incurred solely for the employer's benefit.
- Loans or advances made by the employer to the employee.
- Parking benefits, gym memberships, wellness programs, certain tuition benefits, and employee discounts on retail goods and services.
- The cost of office coffee and snacks provided to employees as gifts.
The final rule does not change existing law. However, it does help resolve confusion employers may have regarding what benefits or "perks" may be excluded from an employee's regular rate. The FLSA requires that overtime compensation be calculated based on an employee's "regular rate," which, subject to certain exceptions, includes all nondiscretionary remuneration for employment. Therefore, miscalculating employees' regular rates can create significant potential liability for employers. Though this final rule provides clarification on what can be excluded from the regular rate, calculating employees' regular rates remains a challenging task.
We will continue to monitor developments and provide updates regarding this final rule as additional information becomes available. In the meantime, if you have any questions or concerns regarding this final rule or the calculation of the regular rate, please do not hesitate to reach out to the authors of this post or any member of Reed Smith's Labor & Employment team.
This article is presented for informational purposes only and is not intended to constitute legal advice.