Labor Department Issues Final Rule on Calculating Regular Rate of Pay

The U.S. Department of Labor (DOL) recently announced a final rule regarding the calculation of “Regular Rate” of pay.  This new rule, which is the first update on the definition of Regular Rate of pay in more than 50 years, will take effect on January 15, 2020.  The definition of the Regular Rate of Pay is extremely important because it affect an employee’s overtime rate of pay.

Currently, the regular rate includes hourly wages and salaries for nonexempt workers, most bonuses, shift differentials, on-call pay and commissions. It excludes health insurance, paid leave, holiday and other discretionary bonuses, and certain gifts.

The issue, however, was that it was unclear which perks/benefits had to be included in the regular rate of pay.  As a result of this uncertainty, some employers were choosing “err on the side of caution” and not to offer certain benefits.

The new rule clarifies the regulations to confirm 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; 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;
  • the 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; and
  • contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.

The Final Rule also clarifies that the label given a bonus does not determine whether it is discretionary and provides fact-based examples of discretionary bonuses that may be excluded from an employee’s regular rate of pay.

It is hoped that the new rule will reduce uncertainty, leading to greater benefits to employees while at the same time lowering the risk of litigation for employers.