On March 28, 2019, the U.S. Department of Labor (DOL) released a proposed rule that, if adopted, will clarify and update the “regular rate of pay” requirements in the Fair Labor Standards Act.
As a reminder, under the FLSA, employers are required to pay non-exempt employees overtime at 1.5 times their “regular rate of pay” for all hours worked over 40 in a workweek. The regular rate of pay is all compensation from the employer that is not specifically excluded in section 7(e) of the FLSA. Some types of pay that are excluded from the regular rate of pay calculation include:
- Discretionary bonuses,
- vacation, sick or holiday pay,
- the cost of health insurance,
- employer contributions to retirement accounts,
- reimbursements for business expenses.
In its proposed rule, the DOL is proposing that the following types of employer-provided benefits also be excluded from the regular rate of pay calculation:
- Payments for “unworked hours” (e.g. paid meal periods)
- Wellness benefits (e.g. gym memberships);
- Employer-provided discounts (e.g. retail discounts or food discounts);
- Payouts of unused vacation and sick leave;
- Accident, unemployment and legal services benefits; and
- Tuition reimbursement and repayment of student loans.
In addition, while the DOL is not proposing any change to the definition of “discretionary bonus”, it has included some additional examples, which may help employers better understand the types of discretionary bonuses that are excludable from the regular rate of pay calculation.
It is important to remember – this is not the final rule. It is only a proposal and must go through a lengthy review process.
The proposed rule will be open to public comment (60-day comment period) after which time the DOL may or may not revise the rules. The final step will be the publication of the final rules. It is difficult to predict when the final rules, if adopted, will take effect.