The Fair Labor Standards Act (FLSA) generally requires overtime pay of at least 1 ½ times the regular rate of pay for hours worked in excess of 40 hours per week for non-exempt employees. The Department of Labor (DOL) published a Notice of Proposed Rulemaking (NPRM) to amend the rules regarding how overtime is calculated, specifically related to what forms of “regular pay” employers include and exclude in the 1 ½ times calculation.
Recently, several class-action lawsuits have alleged that employers violated the FLSA by failing to include the costs of certain perks, such as fitness club membership reimbursements, in the regular rate when calculating overtime. This has resulted in employers becoming discouraged from offering perks to their employees. The proposed rule focuses primarily on clarifying whether certain kinds of perks, benefits, or other miscellaneous items must be included in the regular rate. Because these rates have not been updated in decades the proposal would better define the regular rate for today’s workplace practices.
The Department proposes clarifications to the regulations to confirm that employers may exclude the following from an employee’s regular rate of pay:
- the cost of providing wellness programs, onsite specialist treatment, gym access and fitness classes, and employee discounts on retail goods and services;
- payments for unused paid leave, including paid sick leave;
- reimbursed expenses, even if not incurred “solely” for the employer’s benefit;
- reimbursed travel expenses that do not exceed the maximum travel reimbursement permitted under the Federal Travel Regulation System regulations and that satisfy other regulatory requirements;
- discretionary bonuses;
- benefit plans, including accident, unemployment, and legal services; and
- tuition programs, such as reimbursement programs or repayment of educational debt.
The proposed rule also includes additional clarification about other forms of compensation, including payment for meal periods, “call back” pay, and others.
Discretionary vs. Non-discretionary Bonuses
Employers must use caution with regard to bonus pay. The DOL noted in the proposed rule, simply calling a bonus discretionary does not mean it’s excluded from the regular rate of pay. Few bonuses are discretionary under the FLSA, allowing exclusion from the regular rates.
Examples of non-discretionary bonuses include bonuses:
- paid according to a contract or agreement, such as any bonus that is promised to employees when they are hired or is the result of a collective bargaining agreement;
- that are announced to employees to encourage them to work more steadily, rapidly or efficiently;
- designed to encourage employees to remain with the facility.
An example of a discretionary bonus is a referral bonus paid for the recruitment of new employees. This bonus would not be included in the regular rate of pay if all the following conditions are met: (1) participation is strictly voluntary; (2) recruitment efforts do not involve significant time; and (3) the activity is limited to after-hours solicitation done only among friends, relatives, neighbors and acquaintances as part of the employees social affairs.
Submit Comments to the DOL
Interested parties may submit comments on the proposal here by May 28, 2019. Only comments received during the comment period will be considered part of the rulemaking record. The DOL will consider all timely comments in developing any final rule.