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For the first time in 50 years, the U.S. Department of Labor (DOL) updated the “regular rate” of pay standard used for overtime calculations.
Why does this matter? Under the Federal Fair Labor Standards Act (FLSA), a nonexempt hourly employee must be paid “time and one-half” of their “regular rate” of pay for hours worked beyond 40 in a workweek. The “regular rate” is important because it determines what goes into the calculation of “time and a half” for overtime pay.
However, unlike 50 years ago, employers today often offer their employees a range of “perks” such as wellness programs, fitness classes, nutritional education, vaccinations, and health assessments. Employers normally have not considered these perks to be included in the “regular rate” or overtime calculation. Yet, the DOL’s silence on how these perks actually fit into the calculation has sparked litigation, creating concern and expenses for perk providing employers. Luckily, the DOL’s final ruling makes it crystal clear that these perks and certain other benefits are to be excluded from the “regular rate” calculation.
Instead of reading the 162-page rule and its comments, here is a quick synopsis:
Employers may offer the following benefits and perks without the risk of additional overtime liability:
- The cost of providing parking benefits, wellness programs, onsite specialist treatment, gym access and fitness classes, employee discounts on retail goods and services, 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”;
- Most sign-on bonuses (i.e. those without a clawback provision) and longevity bonuses;
- The cost of office coffee and snacks to employees as gifts;
- Discretionary (non-performance based) 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 DOL estimates that this clarification will save employers upwards of $281 million in litigation costs over the next 10 years. Employers looking to enhance recruiting and retention should review their current compensation and benefits practices and determine what additional perks they can provide to employees without having to pay overtime on them.
*Special thanks to Thomas Raine, who assisted in the drafting of this post. Thomas is a third year Juris Doctor Candidate at the University of Miami School of Law.