DOL Embraces HR Policy Recommendations in Final Overtime Pay Rule

December 13, 2019

The U.S. Department of Labor’s final rule will allow employers to more easily offer perks and benefits to employees without having to fear they would violate the "regular rate" computation rules for overtime payments under the Fair Labor Standards Act.

The regulations, which were last updated more than 50 years ago, govern when an employer must factor in compensation other than an employee's hourly wage in determining the amount of time-and-a-half overtime.

The final rule included a number of recommendations HR Policy made in our comments, including the need to exclude the cost of providing mental health and financial wellness programs and the cost of providing office coffee and snacks to employees as gifts from the regular rate calculation.

The final rule also clarifies that a number of other types of compensation may be excluded from the regular rate computation for overtime payments, including:

  • The cost of providing certain parking benefits, 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

  • Certain sign-on bonuses and certain longevity bonuses.
The rule provides examples of discretionary bonuses that can be excluded, including bonuses to employees who made unique or extraordinary efforts that are not awarded according to pre-established criteria, severance bonuses, referral bonuses for employees not primarily engaged in recruiting activities, bonuses for overcoming challenging or stressful situations, employee-of-the-month bonuses, and other similar compensation as long as they are not paid pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly.

Takeaway:  The new rule, which takes effect on January 15, 2020, will encourage employers to offer a wider variety of benefits and compensation without fearing they might violate the FLSA.  It is unclear if opponents of the rule will challenge it in court.