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Two women discuss new regulations regarding final rule for regular rate.

DOL Releases Final Rule to Provide Clarifications on Regular Rate

Compliance
Article
12/19/2019

The U.S. Department of Labor (DOL) announced a final rule, “Regular Rate Under the Fair Labor Standards Act,” on Dec. 12, 2019, that clarifies and updates the regulations regarding the type of benefits that must be included in an employee’s “regular rate of pay.”

The “Regular Rate under the Fair Labor Standards Act” Final Rule will be effective Jan. 15, 2020.

Under the Fair Labor Standards Act (FLSA), covered employers must pay nonexempt employees at least the federal minimum wage for all hours worked and overtime pay for hours worked over 40 in a workweek. Overtime is paid at one and one-half times an employee’s regular rate of pay. The “regular rate” includes an employee’s hourly rate plus the value of some other types of compensation such as bonuses and shift differentials, if applicable.

Even though the FLSA does not require employers to pay employees on a weekly basis, calculating an employee’s regular rate and overtime pay must be done on an individual workweek basis.

Before the adoption of the Final Rule on the Regular Rate, employers might have felt uncertain about how certain benefits or perks impacted the calculation of the regular rate of pay. The new regulation clarifies whether certain kinds of benefits or perks must be included in the regular rate calculation used to determine an employee’s overtime pay.

The newly adopted regulation confirms that employers may exclude the following when determining an employee’s regular rate of pay:

  • 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; and 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
  • Cost of office coffee and snacks to employees as gifts
  • Discretionary bonuses, by clarifying that the label given a bonus does not determine whether it is discretionary and providing additional examples
  • Contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense

As a result of the specific items enumerated, employers will be able to provide these benefits to non-exempt employees without fear that the regular rate should include the above benefits.

In separate rulemaking, employers should also take note of another recently finalized DOL regulation, the Final Overtime Rule, that updates the salary threshold below which workers qualify for overtime pay.

Additional Resources

Kate Hill
Kate Hill is a compliance analyst who concentrates on the impact of legislative and regulatory changes on employment law for Paychex, Inc.
This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.