In general, the Fair Labor Standards Act (FLSA) requires all covered, non-exempt workers to be paid 1-1/2 times their regular rate of pay as an overtime premium whenever they work more than 40 hours in a given workweek. This leads to the question, what is the employee’s regular rate of pay?
Over time, the Department of Labor and the courts have interpreted the regular rate of pay to include not only the employee’s hourly rate but also non-discretionary bonuses and some other benefits. For example, if the employee earns bonuses for on-time delivery, those bonuses should be included in the employee’s regular rate of pay.
Health insurance, holiday pay, paid leave, discretionary bonuses and some gifts are already excluded from the calculation of an employee’s regular rate.
Recently, the Labor Department proposed a new rule to clarify exactly what types of pay and benefits should be included in the calculation. This is the first proposed update to the calculation in 50 years. The rule has been finalized and is currently being reviewed by the Office of Management and Budget (OMB).
The details of the new rule are not yet available to the public. However, the Society for Human Resource Management obtained an earlier version of the rule that probably reflects what’s in the current version. That earlier version excludes the following types of compensation from the employee’s regular rate of pay:
- Tuition reimbursement
- Employer-provided gyms
- Wellness programs and on-site specialist treatment
- Employee discounts
- Reimbursed expenses, such as travel expenses, as long as they don’t exceed the Federal Travel Regulation system’s maximum reimbursement
- Unemployment insurance, accident services and legal services provided as benefits
Items that companies should include in the calculation include:
- Hourly wages/salaries
- Nondiscretionary bonuses
- Shift differentials
- On-call pay
The OMB has several Labor Department rules under review at the moment. The review process can take up to 90 days.
Overtime threshold also up for revision
The Department of Labor is also working on a rule that would raise the minimum pay for employees to be classified as exempt because they are bona fide executives, learned professionals, or administrators. To be properly classified as exempt, an employee must perform exempt job duties and also be paid above a certain threshold, which is currently $23,660 annually. The new rule is expected to raise the threshold to $35,308.
Since President Trump wants the new rule to be put in place before the 2020 election, there might not be a great deal of advance notice before the rule goes into effect.
If you have questions about properly classifying your employees or calculating their regular and overtime rates of pay, contact an experienced employment law attorney.