On December 12, 2019, the U.S. Department of Labor (DOL) announced a Final Rule that clarifies and updates the regulations under the federal Fair Labor Standards Act regarding the “regular rate of pay.” The Rule clarifies which perks and benefits must be included in an employee’s regular rate of pay and which perks and benefits an employer may exclude from the regular rate of pay. The DOL has issued a fact sheet and FAQ explaining the updates.
Employers may exclude the following from an employee’s regular rate of pay:
- the cost of providing certain parking benefits, wellness programs, onsite specialist treatment, gym access and fitness classes, employee discounts on retail goods and services, certain tuition benefits (whether paid to an employee, an education provider, or a student-loan program), and adoption assistance;
- payments for unused paid leave, including paid sick leave or paid time off;
- payments of certain penalties required under state and local scheduling laws;
- reimbursed expenses including cellphone plans, credentialing exam fees, organization membership dues, and travel, even if not incurred “solely” for the employer’s benefit; and clarifies that reimbursements that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System or the optional IRS substantiation amounts for travel expenses are per se “reasonable payments;”
- certain sign-on bonuses and certain longevity bonuses;
- the cost of office coffee and snacks to employees as gifts;
- discretionary bonuses, by clarifying that the label given a bonus does not determine whether it is discretionary and providing additional examples; and
- contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.
The Final Rule provides fact-based examples of discretionary bonuses that may be excluded from an employee’s regular rate of pay. In addition, the DOL provides additional clarification concerning other compensation types, including meal period payments and “call back” pay.
Employers should be reviewing how they are calculating regular rate of pay for employees and making appropriate adjustments to comply with the updated regulations.
