On March 28, 2019, the Department of Labor (“DOL”) issued a lengthy and detailed Notice of Proposed Rulemaking (“NPRM”) to revise the regulations governing how employers should calculate “regular rate” under the Fair Labor Standards Act (“FLSA”). Upon release, the DOL set a deadline for public notice and comment of May 28, 2019. However, citing the interest expressed by “law firms, unions, and advocacy organizations,” the DOL extended the period for public comment to June 12, 2019.
What’s the Regular Rate and Why Does it Matter?
The Fair Labor Standards Act (“FLSA”) is the federal minimum wage and overtime law. The FLSA requires employers to pay non-exempt employees overtime pay for hours worked over 40 in one workweek. Generally, an employee’s overtime rate is one-and-one-half times their “regular rate.” However, “regular rate” is not necessarily an employee’s base wage––herein lies the confusion.
With a few exclusions, any payments made by an employer to its employee in addition to the base wage, such as bonuses, shift differentials, and incentive payments, will increase the regular rate, and, thus, increase the amount of overtime pay.
The exclusions, therefore, are paramount to employers. Unfortunately, under the current rule, employers often struggle to understand what exactly is excluded, making it difficult for them to determine “regular rate.”
What’s the DOL’s Proposal?
The NPRM focuses primarily on clarifying whether employers may exclude certain perks, benefits, and other miscellaneous payments from the “regular rate” used to determine their employees’ overtime pay. Specifically, the proposed rule outlines the exclusion of the following from “regular rate” calculations:
- the cost of providing wellness programs, such as onsite health treatment by chiropractors and massage therapists, and employer-provided gym memberships;
- employee discounts on retail goods and services;
- payments for unused paid 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;
- discretionary bonuses (i.e.,. employee of the month bonus);
- benefit plans; and
- tuition programs, such as reimbursement programs or repayment of educational debt.
With the 60 day notice and comment rulemaking period originally set to end on May 28, and subsequently extended to June 12, it is unclear when the DOL will issue a final version of the rule.
In the meantime, rest assured. The proposal is seemingly pro-employer, as exclusion of various perks and benefits from the regular rate will result in lower overtime calculations. Although not a significant change to the current regulations, the clarification within the new rule is intended to curb the “fears” that prevent employers “from offering more perks to their employees.”
We encourage you to take this opportunity to consult with counsel, and ensure you are calculating “regular rate” correctly under both the current and proposed DOL rule.