August 12, 2022

Volume XII, Number 224

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Department of Labor Issues Final Rule on Calculating the Regular Rate of Pay Under the Fair Labor Standards Act

On December 12, 2019, for the first time in 60 years, the U.S. Department of Labor (DOL) announced a final rule clarifying the types of benefits that must be included in determining an employee’s “regular rate of pay” when calculating overtime wages. This new rule becomes effective January 15, 2020.

The Fair Labor Standards Act (FLSA) requires that non-exempt employees – employees who are eligible for overtime pay – be paid at least one-and-one half times their regular rate of pay for all hours worked over 40 in a workweek. The FLSA defines the regular rate as “all remuneration for employment paid to, or on behalf of, the employee” subject to certain exclusions outlined in section 7(e) of the FLSA. As employers have expanded the kinds of benefits they offer in recent years, it has become unclear which benefits need to be included and which can be excluded in determining an employee’s regular rate of pay.

The new rule clarifies that employers may exclude the following benefits when calculating 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;

  • Certain sign-on bonuses and certain longevity bonuses;

  • The cost of office coffee and snacks to employees as gifts;

  • Discretionary bonuses (the final rule clarifies that the label given to a bonus does not determine whether it is discretionary); and

  • Contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.

As a result of the final rule, employers may provide these benefits to non-exempt employees without including them in the calculation of their regular rate of pay for overtime purposes. Employers should review the final rule carefully to determine whether any of the clarifications are applicable to their workforce. We will continue monitoring developments in this area and will provide updates as new information becomes available.

*Jamie Moelis is a law clerk in Sheppard Mullin’s New York office.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume X, Number 3
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About this Author

James Hays, Legal Specialist, management of labor and employment law
Partner

 Mr. Hays is a partner in the Labor & Employment Practice Group in the firm's New York office and co-chairs the firm's Traditional Labor Law Team.

Areas of Practice

Mr. Hays' practice focuses on management labor and employment law. He represents clients in collective bargaining negotiations, labor arbitrations, and all stages of the labor election process, including election campaigns and hearings before the National Labor Relations Board. He also represents clients in employment litigation in federal and state courts, as well as...

212-634-3025
Sean Kirby, Legal Specialist, Sheppard Mullin, Labor, Employment
Associate

Sean Kirby is an associate in the Labor and Employment Practice Group in the firm's New York Office.

Areas of Practice

Mr. Kirby has experience representing management in a variety of employment-based matters in both judicial and arbitral forums, including disputes relating to discrimination and harassment allegations, breach of restrictive covenants and employment agreements, and wrongful termination.  Mr. Kirby also counsels employers on labor and employment issues, including wage and hour matters, personnel policies and internal investigations. In addition...

212-634-3023
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