U.S. Department of Labor Publishes Notice to Update “Regular Rate” Regulations

Breaking its 50-year silence on the matter, on March 28 the U.S. Department of Labor announced its intention to update the federal regulations explaining how to calculate the “regular rate of pay” for non-exempt employees. Accurately calculating the regular rate is an essential step in paying the correct amount of overtime pay at one-and-one-half times the regular rate when a non-exempt employee works more than 40 hours in a workweek. The regulations governing regular rate requirements have not been updated since 1968, even though pay practices have changed significantly.

Although not as high-profile as the recent salary threshold increase for the white-collar exemptions, this rule-making has the potential for a significant impact on employers. As the DOL noted in its release, under current rules, employers are discouraged from offering more perks to their employees as those perks may be vaguely defined in calculating an employees’ regular rate of pay.  The DOL’s proposed rule focuses primarily on clarifying whether certain kinds of perks, benefits or other miscellaneous items must be included in the regular rate.

Some employers are painfully aware, thanks to class action lawsuits, of the confusion caused by the current regular rate regulations. The DOL itself estimates that clarifying the rule will save litigation costs of $281 million over the next 10 years. The Department proposes clarifications to confirm that employers may exclude the following from an employee’s regular rate of pay:

  • 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 under the Federal Travel Regulation System and that satisfy other regulatory requirements;
  • discretionary bonuses, by providing additional examples and clarifying that the label given a bonus does not determine whether it is discretionary;
  • benefit plans, including accident, unemployment, and legal services; and
  • tuition programs, such as reimbursement programs or repayment of educational debt.

The proposed rule also includes additional clarification about other forms of compensation, including, but not limited to, payment for meal periods and “call back” pay. More information about the proposed rule is available at www.dol.gov/whd/overtime/regularrate2019.htm. The DOL encourages interested members of the public to submit comments about the proposed rule electronically at www.regulations.gov, in the rulemaking docket RIN 1235-AA24. Comments must be submitted by 11:59 p.m. on May 28, 2019, in order to be considered.

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HR Headaches is a blog for Human Resources professionals, business owners, and in-house counsel to get the latest news, analysis and tips in the area of labor and employment law. Every day there are new court decisions, agency interpretations, and regulations which affect the workplace, making it difficult, if not impossible, for many employers to keep current. HR Headaches is dedicated to providing information in a practical, no-nonsense manner to help employers avoid legal disputes and keep policies up to date.
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