United States DOL Issues Notice of Proposed Rulemaking To Update FLSA Regular Rate Regulations

United States DOL Issues Notice of Proposed Rulemaking To Update FLSA Regular Rate Regulations

The United States Department of Labor announced a Notice of Proposed Rulemaking on March 28, 2019 regarding the regular rate of pay requirements under Section 7(e) of the Fair Labor Standards Act (FLSA).  The Proposed Rule will be published in the Federal Register on March 29, 2019.   The Proposed Rule seeks to clarify and update the “regular rate” determination requirements for the first time in over 50 years.  When the FLSA was promulgated over 50 years ago, typical compensation consisted predominantly of traditional wages; paid time off for holidays and vacations; and contributions to basic medical, life insurance, and disability benefits plans.  Since then, the perks and benefits offered by employers have greatly changed. 

The FLSA generally requires that covered, nonexempt employees receive overtime pay of at least one and one-half times their “regular rate of pay” for time worked in excess of 40 hours per work week. The FLSA defines the regular rate as “all remuneration for employment paid to, or on behalf of, the employee”—subject to eight exclusions established in Section 7(e).  (See 29 U.S.C. § 7(e)).  Many employers fail to include such remuneration in the overtime calculation for time and one-half; that is overtime is improperly paid on the “hourly rate” instead of the “regular rate”. 

The Proposed Rule seeks to clarify that employers may exclude the following when determining the regular rate when making overtime pay calculations:

  • 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 travel expenses that do not exceed the maximum travel reimbursement   permitted under the Federal Travel Regulation System regulations and meets other regulatory requirements; and
  • pay for time that would not otherwise qualify as “hours worked,” including bona fide meal periods, unless an agreement or established practice indicates that the parties have treated the time as hours worked.

That is, these amounts do not bump up the employee’s “hourly rate” for overtime pay purposes.

The Proposed Rule also seeks to clarify 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.  Further, under the Proposed Rule, employers do not need a prior formal contract or agreement with the employee to exclude certain overtime premiums described in sections 7(e)(5) and (6) of the FLSA. The Proposed Rule also provides examples of discretionary bonuses that may be excluded from an employee’s regular rate of pay under section 7(e)(3) of the FLSA and clarify that the label “bonus” does not determine whether it is discretionary.  The Proposed Regulations also provide additional examples of benefit plans, including accident, unemployment, and legal services, that may be excluded from an employee’s regular rate of pay under section 7(e)(4) of the FLSA.  Additionally, the Proposed Regulations clarify that tuition programs, such as reimbursement   programs or repayment of educational debt, could be excluded under several different provisions of section 7(e). 

The Proposed Rule also makes changes to “call-back” pay under the FLSA.  The Proposed Regulations clarify that “call-back” pay and other similar types of pay must be “infrequent and sporadic” to be excludable from the employee’s regular rate of pay.  The “call-back” pay, however, must not be “so regular” that it is “essentially prearranged”.  Many states require call back pay guarantees. 

Employers and others may comment on the Proposed Rule until May 28, 2019.   The DOL will issue the Final Rule, likely in conjunction with the recently proposed overtime salary rule.  Employers should review their overtime pay practices to assure that overtime for non-exempt employees is paid based on the “regular rate” rather than the “hourly rate.” 

© March 28, 2018

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