Today, the U.S. Department of Labor (“DOL”) released a proposal to amend the regulations that define the regular rate requirements. If adopted, the new regulations could reduce challenges often faced by employers in determining the correct overtime rate for non-exempt employees.
Overview of Rules Currently Applicable to the “Regular Rate”
Overtime compensation for non-exempt employees is computed at one and one-half the “regular rate” of pay. The regular rate, however, is not necessarily the employee’s usual rate of pay. Rather, the regular rate is calculated by dividing the total wages paid to the employee in a workweek by the total number of hours worked. The “total wages” considered in this calculation must include all “remuneration” paid to the employee, subject to only limited exceptions. Regulations promulgated under the Fair Labor Standards Act specify what types of payments (e.g., certain bonuses, commissions) are included for purposes of this calculation, and what compensation paid to employees may be excluded. To ensure that employees receive the correct overtime pay rate, it is critical that the “regular rate” is calculated correctly. The federal regulations defining the regular rate have not been modified in 50 years and have, historically, caused a slew of class action claims against employers in which employees allege that the regular rate, and hence the overtime rate, were improperly calculated and paid to employees.
The DOL’s Proposed Regulations
On March 29, 2019, the DOL published a Notice of Proposed Rulemaking (“NPRM”) and request for comments, outlining its proposed changes to “clarify and update” the Fair Labor Standards Act requirements regarding the “regular rate.” According to the DOL, the proposed regulations will:
- Clarify whether certain kinds of “employee perks,” benefits or other miscellaneous payments must be included in the regular rate;
- Confirm that the cost of providing wellness programs, onsite specialist treatment, gym access and fitness classes, and employee discounts on retail goods and services may be excluded from an employee’s regular rate of pay;
- Confirm that payments for unused paid leave, including paid sick leave, may be excluded from an employee’s regular rate of pay; and
Confirm that reimbursed expenses need not be incurred “solely” for the employer’s benefit for the reimbursements to be excludable from an employee’s regular rate.