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DEPARTMENT OF LABOR ISSUES PROPOSAL TO UPDATE FLSA’S REGULAR RATE REGULATIONS

March 28, 2019

This morning the U.S. Department of Labor (“DOL”) announced that it is considering a modification to its overtime regulations. Under the current federal Fair Labor Standards Act (“FLSA”), most employers are required to pay nonexempt employees at least “time and one-half” for all hours worked over 40 hours in a work week.[1] Overtime compensation is based on an employee’s “regular rate of pay.” When an employee’s compensation is strictly an hourly wage, finding the employee’s regular rate of pay is usually a straightforward calculation.  For example, an employee that earns $10.00 per hour has a regular rate of pay of $10.00 per hour resulting in $15.00 per hour for overtime work.

When an employer offers compensation beyond an hourly rate, the overtime calculation becomes less clear and more complex. This complexity and the potential consequences of incorrectly calculating an employee’s regular rate of pay has discouraged employers from offering more perks to their nonexempt employees. To respond to this unintended consequence, the DOL proposes to clarify its current regulations and confirm that an employer may exclude the following from an employee’s regular rate of pay calculation:

  • the cost of providing wellness programs, onsite specialist treatment, gym access and fitness classes, and employee discounts on retail goods and services;
  • payments for unused paid leave, including paid sick 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 and that satisfy other regulatory requirements;
  • discretionary bonuses;
  • benefit plans, including accident, unemployment, and legal services; and
  • tuition programs, such as reimbursement programs or repayment of educational debt.

The proposed rule will also provide clarity on how to classify other forms of compensation such as pay for meal periods, “call back” pay and others.

The proposed rule is only a proposal. It will be published in the Federal Register tomorrow (March 29, 2019) and then open for comments through May 28, 2019. Once the rule is published, comments can be submitted at www.regulations.gov (rulemaking docket RIN 1235-AA24). Once the comment period closes, the DOL will consider a Final Rule. It is unknown how long this will take.

If you have questions about this or any employment law issue, or would like assistance in analyzing the application of this proposed rule to your business, please contact any of the Blethen Berens employment-law attorneys.

[1] Some jobs are governed by a different FLSA overtime threshold.

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