The Department of Labor (DOL) recently released a proposal that defines and updates what forms of payment employers can include and exclude in the time-and-one-half calculation when determining overtime rates. Read this blog post to learn more.

For the first time in 50 years, the Department of Labor has proposed changing the definition of the regular rate of pay.

The proposal, announced Thursday, “defines and updates” what forms of payment employers include and exclude in the time-and-one-half calculation when determining workers’ overtime rates, according to the DOL.

The regulations the DOL is proposing to revise govern how employers must calculate the regular rate and overtime pay rate, including the types of compensation that must be included and may be excluded from the overtime pay calculation, says Tammy McCutchen, a principal at Littler Mendelson and former administrator of the Department of Labor’s Wage and Hour Division.

The regular rate of pay is not just an employee’s hourly rate, she says, but rather includes “all remuneration for employment” — unless specifically excluded by section 7(e) of the FLSA.

Under current rules, employers are discouraged from offering more perks to their employees as it may be unclear whether those perks must be included in the calculation of an employees’ regular rate of pay, the DOL says. The proposed rule focuses primarily on clarifying whether certain kinds of perks, benefits or other miscellaneous items must be included in the regular rate.

The DOL proposes 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 and call back pay.

The regulations will benefit employees, primarily, ensuring that employers can continue to provide benefits that employees’ value — tuition reimbursements, student loan repayment, employee discounts, payout of unused paid leave and gym memberships, McCutchen says.

“Remember, there is no law that employers must provide employees these types of benefits,” she adds. “Employers will not provide such benefits if doing so creates risk of massive overtime liability.”

Knowing when employers must pay overtime on these types of benefits, how to calculate the value of those benefits and overtime pay are all difficult questions, she adds. “Unintentional mistakes by good faith employers providing valued benefits to employees is easy. With this proposed rule, the DOL is embracing the philosophy that good deeds should not be punished.”

She notes the proposal does not include any specific examples of what reimbursements may be excluded from the regular rate.

“One big open question is whether employers must pay overtime when they provide employees with subsidies to take public transportation to work — as the federal government does for many of its own employees — I think around $260 per month in the DC Metro area,” she adds.

The DOL earlier this month proposed to increase the salary threshold for overtime eligibility to $35,308 up from the current $23,660. If finalized, the rule would expand overtime eligibility to more than a million additional U.S. workers, far fewer than an Obama administration rule that was struck down by a federal judge in 2017.

Employers are expected to challenge the new rule as well, based on similar complaints of administrative burdens, but a legal challenge might be more difficult to pass this time around.

SOURCE: Otto, N. (28 March 2019) “DOL proposes new rule clarifying, updating regular rate of pay” (Web Blog Post). Retrieved from https://www.benefitnews.com/news/dol-proposes-new-rule-on-regular-rate-of-pay-calculation?brief=00000152-14a5-d1cc-a5fa-7cff48fe0001