USDOL Updates FLSA Regular Rate Requirements for Calculating OT

Effective January 15, 2020, when calculating employees’ regular rate of pay to determine overtime pay, employers may exclude certain “perks” and benefits, including:

  • the cost of certain parking benefits, wellness programs, onsite specialist treatment, gym access and fitness classes, employee discounts on retail goods and services, certain tuition benefits, 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;
  • certain sign-on bonuses and certain longevity bonuses;
  • the cost of office coffee and snacks to employees as gifts;
  • discretionary bonuses;
  • contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.

These clarifications are part of the U.S. Department of Labor (USDOL) Final Rule updating regular rate requirements under the Fair Labor Standards Act (FLSA), published in the Federal Register on December 16, 2019.

Two substantive changes made to the regulations include:

  • “Call-back” pay: eliminated the restriction that call-backs must be “infrequent and sporadic” to be excludable from the regular rate of pay, while maintaining that such payments must not occur so often as to be essentially prearranged.
  • “Basic rate” regulations: employers using an authorized basic rate may exclude from the overtime computation any additional payment that would not increase total overtime compensation by more than 40 percent of the higher of the applicable local, state or federal minimum wage (instead of $0.50 a week on average, as in the existing rule) for overtime workweeks in the period for which the employer makes the payment.

This rule marks the first significant change to the regulations in more than 50 years.

For more details, see the USDOL press release or its Fact Sheet; see also the final rule.