Why it’s important: The FLSA generally requires overtime pay of at least one and one-half times the regular rate for hours worked in excess of 40 hours per workweek. The regular rate rules identify what types of bonuses, payments, and other forms of compensation employers must include and can exclude in the “time and one-half” calculation when determining workers’ overtime pay.
Under current rules, which have not been updated in decades, employers are discouraged from offering benefits to their employees as it may be unclear whether those benefits must be included in an employee’s regular rate of pay.
The proposed rule clarifies that employers may exclude the following from an employee’s regular rate of pay when calculating overtime 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 permitted under the Federal Travel Regulation System regulations and that satisfy other regulatory requirements;
- Discretionary bonuses;
- Benefit plans, including accident, unemployment, and legal services; and
- Tuition programs, such as reimbursement programs or repayment of educational debt.
The proposed rule also includes additional clarification about other forms of compensation, including payment for meal periods, “call back” pay, and others.
Outlook: The Association plans to file comments on the technical proposed rule, which has a 60-day public comment period. The proposal addresses a very confusing area of the law and is likely to be criticized as cutting overtime pay. Looking ahead, it may be the subject of House hearings.
