DOL Finalizes Rule Excluding Certain Perks from the “Regular Rate of Pay”
The Department of Labor’s new rule raising the salary level for overtime exemption to $35,568 goes into effect on January 1, 2020. With this rapidly approaching change, many employers are considering whether to increase employee salaries or begin paying overtime. For employers whose employees consistently work 40-hour weeks, it may be more cost-effective to pay overtime for those infrequent 40+ hour weeks.
Employers who choose to pay overtime must ensure they pay the appropriate overtime rate. The Fair Labor Standards Act (“FLSA”) requires employers to pay non-exempt employees one and one-half times their “regular rate of pay.” Regular rate of pay generally includes “all remuneration for employment paid to, or on behalf of, the employee.” 29 U.S.C. § 207(e). While the FLSA itself excludes certain categories of payments from the definition of regular rate, e.g., sums paid as gifts, payments for vacation, holiday, illness, extra compensation provided by a premium rate, etc. . ., many employment perks do not fit squarely within these categories.
In today’s competitive labor market, many employers are offering new types of perks, such as school tuition, gym memberships, office snacks, etc. The Department of Labor recently amended current regulations to clarify what types of perks are excluded from the regular rate of pay. The rule was published December 16, 2019 and goes into effect January 15, 2020.
According to the Department of Labor, the following benefits and perks are excluded from the 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.
With the changing labor market, jobs that provide new and exciting perks like those listed above are more attractive. For employers, offering these types of perks may make the difference in recruiting and retaining qualified employees. The new Department of Labor rule makes clear that providing these perks will not increase overtime exposure for employers.