On December 12, 2019, the U.S. Department of Labor (Department) announced a Final Rule that will allow employers to more easily offer perks and benefits to their employees.
The rule marks the first significant update to the regulations governing regular rate requirements under the Fair Labor Standards Act (FLSA) in over 50 years. Those requirements define what forms of payment employers include and exclude in the FLSA’s “time and one-half” calculation when determining overtime rates.
The previous regulatory landscape left employers uncertain about the role that perks and benefits play when calculating the regular rate of pay. The new rule clarifies which perks and benefits must be included in the regular rate of pay, as well as which perks and benefits an employer may provide without including them in the regular rate of pay.
The Department clarifies the regulations to confirm that employers may exclude the following from an employee’s regular rate of pay:
The Final Rule also includes additional clarification 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 under section 7(e)(3) of the FLSA. In addition, the Department makes two substantive changes to the existing regulations. First, the Department eliminates the restriction in §§ 778.221 and 778.222 that “call-back” pay and other payments similar to call-back pay must be “infrequent and sporadic” to be excludable from an employee’s regular rate, while maintaining that such payments must not be prearranged. Second, the Department updates its regulations pertaining to the “basic rate,” which is authorized under section 7(g)(3) of the FLSA as an alternative to the regular rate under specific circumstances. Under the Final Rule, employers using an authorized basic rate may exclude from the overtime computation any additional payment that would not increase total overtime compensation by more than 40 percent of the higher of the applicable local, state, or federal minimum wage a week on average for the overtime workweeks in which the employer makes the payment.
The Final Rule will publish on December 16, 2019, in the Federal Register, with an effective date of January 15, 2020. Public comments that were submitted on the rule during the open comment period may be viewed at www.regulations.gov in the rulemaking docket RIN 1235-AA24.
