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In the first update to these regulations in 50 years, the Department of Labor on December 18, 2019 published a Final Rule clarifying when payments - such as year-end bonuses - must be included in an employee's "regular rate" (i.e., pay divided by hours worked) for purposes of calculating overtime.  The new rules take effect January 15, 2020.

The Fair Labor Standards Act (FLSA) requires employers, among other things, to pay nonexempt workers one-and-one-half times their "regular rate" of pay for all hours worked over 40 in any work week.  The old rules sometimes left employers in doubt about whether a payment should be included in that rate: a mistake could lead to expensive liability for back pay and liquidated damages, plus attorneys' fees if a private lawyer got involved on behalf of the employees.  Doubts about whether the value of certain "perks" should be included often discouraged employers from offering them.

The new rules allow employers to exclude the value of the following in figuring the regular rate:

  • parking benefits, wellness programs, certain onsite specialist treatments, gym memberships, fitness classes, discounts on retail goods, certain tuition benefits, and adoption assistance;
  • cash payments made in lieu of unused paid leave, including paid sick leave and paid time off;
  • payments of certain state and local penalties;
  • reimbursement for certain expenses such as for cell phone plans, credentialing (licensing) exam fees, membership dues, and travel (even if not exclusively for the employer's benefit) up to certain limits;
  • certain signing and longevity bonuses;
  • the cost of office coffee and snacks (!);
  • certain discretionary bonuses; and
  • contributions to certain benefit plans such as for accident, unemployment, or legal services, or for other events that could cause financial hardship or expense.

The Final rule also clarifies that calling a payment a "bonus" won't necessarily make it so and provides helpful examples of payments that may lawfully be excluded from the regular rate.  There are two other changes to existing regulations:  one to eliminate the restriction that "call-back" pay must be infrequent and sporadic to be excluded, and a second to update rules regarding the "basic rate" that is sometimes an alternative to the "regular rate" and may apply in certain circumstances to payments made in certain overtime weeks to comply with local, state and Federal minimum wage requirements. 

Human resources professionals, and employment lawyers, often remark that "no good deed goes unpunished."  This was sometimes true with the regular rate, when an enterprising plaintiff's lawyer could argue that hourly sales clerks should have the value of their in-store discounts or parking added to their regular rate when overtime was calculated.  No more!  These revised regulations bring much-needed clarity and predictability to the regular rate.  Thanks - and Happy Holidays to you too, Secretary Scalia!

Wimberly, Lawson, Steckel, Schneider & Stine

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