Because of a new rule adopted by the U.S. Department of Labor, employers will find it easier to offer their workers various benefits and perks under federal wages laws.
Effective Jan. 15, the rule proposed last year is the first significant update in 50 years of the regular rate imposed under the Fair Labor Standards Act overtime provision defining the forms of payment that employers can exclude for purposes of FLSA overtime payment “time and one-half” calculations.
“The previous regulatory landscape left employers uncertain about the role that perks and benefits play when calculating the regular rate of pay,” DOL points out.
“The new rule clarifies which perks and benefits must be included in the regular rate of pay, as well as which perks and benefits an employer may provide without including them in the regular rate of pay.”
Excluded from an employee’s 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 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. Also, 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 kinds of sign-on and longevity bonuses.
• The cost of office coffee and snacks given to employees as gifts.
• Discretionary bonuses, by clarifying that the label on a bonus does define its applicability.
• Contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.
The final rule also spells out that the label placed on a bonus does not determine whether it is discretionary and offers fact-based examples of discretionary bonuses that may be excluded from an employee’s regular rate of pay under the FLSA. DOL issued a Fact Sheet and Highlights explaining its revised interpretation.
In addition, DOL eliminated the restriction that “call-back” pay and other payments similar to call- back pay must be “infrequent and sporadic” to be excludable from an employee’s regular rate, but maintains such payments must not be prearranged.
Secondly, the department has updated its regulations pertaining to the “basic rate,” which is authorized under FLSA as an alternative to the regular rate under specific circumstances.
Employers using an authorized basic rate may exclude from overtime computation any additional payment that would not increase total overtime compensation by more than 40% of the higher of the applicable local, state or federal minimum wage a week on average for the overtime workweeks in which the employer makes the payment.
The rule also provides that “certain” sign-on and longevity retention bonuses may be excluded, note attorneys Leslie Selig Byrd and Amber Dodds of the Bracewell law firm. “Employers should be thoughtful when determining whether the bonuses they provide in these circumstances may properly be excluded from the regular rate.”