- Tax Alerts
DOL Announced Final Rule Regular Rate under FLSADecember 18, 2019 Alerts
The Department of Labor announced the final Regular Rate rule under the FLSA. The rule clarifies what employee benefits may be excluded from the regular rate of pay.
At a Glance
- The Department of Labor (DOL) announced the final Regular Rate rule under the FLSA. The rule clarifies what employee benefits may be excluded from the regular rate of pay.
- This comes after the FLSA announced the Final Overtime Rule on 09/24/19.
- The Regular Rate rule goes into effect 01/15/20.
- The full text can be found on the Federal Register.
The US DOL has had several items pending on its legislative calendar for 2019 including the change to what benefits are included in calculating the regular rate of pay. The regular rate of pay is used in calculating the overtime rate of time and a half. This is the first significant update to the rule in over 50 years.
Per the DOL, under the final rule, employers may exclude the following employee benefits from the 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.
Additionally, further clarification is provided for the following under the final rule:
- Bona fide meal periods, where an employee does not perform any work, are not considered “hours worked” for minimum wage or overtime requirements, unless an agreement between employer and employee or other established practice treats the meal period as hours worked. Employers are not required to provide compensation for bona fide meal periods.
- Paid leave that is unused, including paid sick leave, may be excluded from the regular rate.
- Call-back pay, and other similar payments, must be “infrequent and sporadic” to be excluded from the employees regular rate.
- Payment for state and local scheduling laws, the DOL has clarified that payments made under state and local scheduling laws should be treated similarly to show-up pay. Compensation for hours actually worked are included in the regular rate. Compensation paid to the employee for time spent reporting to work, but not actually performing work, is not included in the regular rate of pay.
Beginning January 15, 2020, employers must comply with the DOL Final Rule for Regular Rate. Employers should review the final rule details and make any necessary changes to ensure their employees regular rate is accurate.
In addition, we recommend that employers begin auditing their current compensation practices and job descriptions to determine whether there is a need to make salary adjustments to meet the new salary thresholds or make changes to exempt employees’ statuses, for the overtime rule that goes into effect January 1, 2020.
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This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.