DOL proposal would update, clarify ‘regular rate’
The Department of Labor has released a proposed rule that would clarify and update the “regular rate” requirements in regulations that have not been updated in more than 50 years. The regular rate has been a headache for many employers, because while it is the rate that must be used when calculating overtime pay, that rate is not always easy to determine.
A notice of proposed rulemaking scheduled for publication in the Federal Register on March 29, 2019, endeavors to bring the regulations into the 21st century and take away some of the mystery for employers.
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 workweek. The regular rate includes all remuneration for employment, subject to certain exclusions that are outlined in Section 7(e) of the FLSA.
The DOL’s official interpretation of Section 7’s overtime compensation requirements, including requirements for calculating the regular rate, is contained in Part 778 of Title 29, Code of Federal Regulations. Part 548 of Title 29 implements section 7(g)(3) of the FLSA, which permits employers under specific circumstances to use a basic rate to compute overtime compensation rather than a regular rate.
It’s about time. The DOL stressed that it has not updated many of these regulations in more than half a century, despite the fact that compensation practices have evolved significantly. The notice of proposed rulemaking updates multiple regulations both to provide clarity and better reflect the 21st century workplace, it says. The proposed changes, according to the DOL, would promote FLSA compliance; provide appropriate and updated guidance in an area of evolving law and practice; and encourage employers to provide additional and innovative benefits to workers without fear of costly litigation.
The sticky question of perks. Under current rules, employers are discouraged from offering more perks to their employees because it may be unclear as to whether those perks must be included in the calculation of an employees’ regular rate of pay, the DOL observed in a release. The proposed rule focuses primarily on clarifying whether certain kinds of perks, benefits, or other miscellaneous items must be included in the regular rate. Because these regulations have not been updated in decades, the proposal would better define the regular rate for today’s workplace practices.
Excludable from regular rate. Under the proposed rule, 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.
Meal periods and “call back pay.” Among other things, the proposed rule would also clarify (in Parts 778.218(b) and 778.320) that pay for time that would not otherwise qualify as “hours worked,” including bona fide meal periods, may be excluded from an employee’s regular rate unless an agreement or established practice indicates that the parties have treated the time as hours worked.
The rulemaking would also eliminate the restriction (in Parts 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 so regular that they are essentially prearranged.
Basic rate computations. Notably, the proposed rule would increase, from $0.50 to a weekly amount equivalent to 40 percent of the hourly federal minimum wage (currently $2.90, or 40 percent of $7.25), the amount by which total compensation would not be affected by the exclusion of certain additional payments when using the “basic rate” to compute overtime provided by § 548.3(e).
Source: Written by Pamela Wolf, J.D.