“Regular Rate” Updated Under New FLSA Final Rule

By: Jessica Jackler

On December 12, 2019, the DOL announced a new Final Rule updating what constitutes the “regular rate” under the Fair Labor Standards Act (FLSA). The Final Rule should ease the burden for employers that offer perks and benefits to their employees without fear of miscalculating overtime rates.

Prior to the announcement of this Final Rule, employers were left unsure of which perks and benefits should be considered when calculating the regular hourly rate of employees. The Final Rule offers clarity on this subject and confirms that employers may exclude the following from an employee’s regular rate of pay:

• the cost of providing certain parking benefits, wellness programs, onsite specialist treatment, gym access and fitness classes, employee discounts on retail goods and services, certain tuition benefits (whether paid to an employee, an education provider or a student-loan program), and adoption assistance;
• payments for unused paid leave, including paid sick leave or paid time off;
• payments of certain penalties required under state and local scheduling laws;
• reimbursed expenses including cellphone plans, credentialing exam fees, organization membership dues and travel, even if not incurred “solely” for the employer’s benefit; clarifies that reimbursements that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System or the optional IRS substantiation amounts for travel expenses are per se “reasonable payments”;
• certain sign-on bonuses and certain longevity bonuses;
• the cost of office coffee and snacks to employees as gifts;
• discretionary bonuses, clarifying that the label given a bonus does not determine whether it is discretionary and providing additional examples; and
• contributions to benefit plans for accident, unemployment, legal services or other events that could cause future financial hardship or expense.

Additionally, the Final Rule addresses two other changes:

1. “call-back” pay and other payments similar to call-back pay no longer need to be “infrequent and sporadic” to be excluded from an employee’s regular rate; and
2. employers using an authorized basic rate may exclude from the overtime computation any additional payment that would not increase total overtime compensation by more than 40% of the higher of the applicable local, state or federal minimum wage a week on average for the overtime workweeks in which the employer makes the payment.

The Final Rule went into effect January 15.

Practice Tip: The Final Rule is a welcome update to employers and should provide more ease to companies that offer perks and benefits to employees. If you have any questions about the Final Rule, please contact Storrs Downey or Jessica Jackler.