DOL clarifies what compensation and benefits can be excluded from an employee’s regular rate

Wage and Hour Update: Department of Labor Updates Regular Rate Calculation

Beginning January 15, 2020, companies that employ hourly, nonexempt workers who work overtime will have more flexibility calculating overtime payments.  Recently, the Department of Labor (“DOL”) issued final rules regarding the extent to which an employer can exclude certain benefits and compensation from an employee’s regular rate of pay.  An employee’s regular rate is the basis for calculating an employee’s overtime payments.

Under the Fair Labor Standards Act, an employer is required to pay hourly, nonexempt employees overtime for all hours worked in excess of 40 hours in a workweek.  The overtime rate equals one and one-half times the employee’s regular rate.  So, what type of compensation is included in an employee’s regular rate?

Generally, all compensation for employment is included in an employee’s regular rate.  Under the new rules, the DOL clarifies which compensation and benefit items an employer can exclude in calculating an employee’s regular rate, which results in paying out a smaller amount for overtime pay.  It is now clear that the following items can be excluded from an employee’s regular rate:

• Occasional payments for unused leave, vacation time, including paid time off, and paid sick leave;
• Certain sign-on and longevity bonuses;
• Employer-provided office coffee and snacks;
• Discretionary bonuses;
• Certain tuition benefits;
• Adoption assistance;
• Employee reimbursements for amounts the employee incurs on the employer’s behalf for the employee’s own benefit or convenience, such as credentialing exam fees and organization membership dues;
• Certain employee travel expenses;
• Providing gym access, gym memberships, and fitness classes;
• Discounts on employer retail goods and services,
• Wellness programs and onsite specialists
• Contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense;
•  Parking benefits; and
• Payments for certain penalties the employer incurs under state and local scheduling laws.

Calculating an employee’s regular rate can become complicated quickly.  It’s important to understand what you can exclude from that calculation to avoid inadvertently paying employees more than you intend.  Equally as important is understanding what you need to include.  To stay compliant and up to date on changes in employment law, contact Peter Langdon or Harvey Cooper at 402-392-1250 or by email at [email protected] or [email protected].