On December 12, 2019, the U.S. Department of Labor (DOL) declared a new final rule to clarify what types of benefits must be included when determining an employee’s “regular rate of pay” when calculating overtime wages. An employee’s regular rate of pay refers to any money an employee receives for work they’ve done, which has been a source of confusion in the past when it comes to overtime.
The final rule, which became effective on January 15, 2020, seeks to provide clarity in the first significant update to regulations governing regular rate requirements, particularly overtime, under the Fair Labor and Standards Act (FLSA). The FLSA requires that non-exempt employees, ones who can earn overtime, must be paid at least one and one-half times their regular rate of pay for all hours worked over 40 in a single workweek. Over the years, it’s become less clear what benefits to include and not include in a regular rate of pay. The final rule now states that the following is excluded from the regular rate:
- Costs of any wellness programs or onsite specialist treatment; gym access and fitness classes; employee discounts; payments for unused paid time off or sick leave
- Payments of certain penalties required under state and local scheduling laws, such as predictive scheduling penalties
- Reimbursed expenses including cellphones, exam fees, membership dues, travel, even if they weren’t incurred for the employer’s benefit
- Pay for time that does not qualify as “ hours worked”
- Any overtime premiums, discretionary bonuses, or tuition assistance programs
- The cost of coffee or offices snacks considered as gifts
- Contributions to benefits plans for accident, unemployment, or legal services
Employers may still provide these benefits to non-exempt employees without including them in the calculation of their regular rate of pay when determining their overtime. All employers should carefully review the final rule to see what applies to their employees.