Labor Department Updates 50-Year-Old ‘Regular Rate’ Pay Rule

Final rule under review by Office of Management and Budget

Lisa Nagele-Piazza, J.D., SHRM-SCP By Lisa Nagele-Piazza, J.D., SHRM-SCP September 10, 2019
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Employers may soon have some clarity on which perks must be included in workers' "regular rate" of pay, which is used to calculate overtime premiums under the Fair Labor Standards Act (FLSA).

The U.S. Department of Labor (DOL) recently sent a final rule on this topic to the White House Office of Management and Budget (OMB), according to Politico's Morning Shift.

Although the details of the final proposal haven't been made available to the public, an earlier version would exclude the following benefits from the definition of regular rate:

  • Tuition reimbursement benefits.
  • The value of an employee discount.
  • The cost of an employer-provided gym.
  • The cost of providing wellness programs and onsite specialist treatment.
  • Reimbursed expenses, including travel expenses that do not exceed the maximum travel reimbursement under the Federal Travel Regulation system.
  • Accident, unemployment and legal services, which the DOL considers to be benefits plans.

The Society for Human Resource Management (SHRM) supports the proposed revisions. "Changes to the regular rate regulations affect the workplaces of nearly every SHRM member and the employees they serve," according to a letter SHRM submitted to the DOL. SHRM believes that "employees and employers are best served with a system that promotes maximum flexibility in structuring employee pay and benefits and clarity for employers when preparing total compensation packages."

We've rounded up articles and resources from SHRM Online and other trusted media outlets on the news.

DOL Proposes Update to 'Regular Rate' Calculation

This is the first time in 50 years that the DOL has proposed an update to the FLSA definition of the regular rate of pay. The regular rate includes hourly wages and salaries for nonexempt workers, most bonuses, shift differentials, on-call pay and commissions. However, it excludes health insurance, paid leave, holiday and other discretionary bonuses, and certain gifts. Many employers aren't sure what must be included in the regular rate of pay. So instead of risking a lawsuit, some employers are choosing not to offer competitive benefits. The new rule would give employers a better idea of what benefits they can offer without changing the regular rate of pay and overtime premiums.

(SHRM Online)

[SHRM members-only toolkit: Calculating Overtime Pay in the United States]

Further Clarification Requested

SHRM "appreciates the department's efforts to clarify these provisions, but requests that it go still further in clarifying discretionary bonus payments," according to the Society's letter to the Labor Department. For example, sign-on bonuses may be considered discretionary, and including a provision that requires an employee to remain employed for a specified period of time or repay the sign-on bonus should not alter the analysis, SHRM said.

(SHRM Online)

Swifter Action on New Wage Rules Expected

The OMB is currently reviewing several key Labor Department rules, and its review can take up to 90 days. Acting Labor Secretary Patrick Pizzella—who is sometimes viewed as more business-friendly than his predecessor Alexander Acosta—is committed to moving deregulatory actions along at a faster pace.

(Politico)

Employers Should Plan Now for New Federal Overtime Rule

The DOL is also expected to set a new salary threshold soon for the FLSA's white-collar exemptions to overtime pay—and employers should start planning for changes now. President Donald Trump's administration wants to get a new rule in place before the 2020 presidential election, noted Tammy McCutchen, an attorney with Littler in Washington, D.C. So the DOL might only give employers three or four months between the announcement of the final rule and its effective date to comply. The proposed rule would raise the exempt salary threshold to $35,308 (from $23,660), though the final cutoff could be adjusted.

(SHRM Online)

Joint-Employer Rule Would Provide Clarity

The Labor Department has also proposed a multifactor test that would be used to determine whether businesses are joint employers that share liability for FLSA wage and hour violations. The proposal aims to provide clarity for businesses, which will likely not be deemed joint employers if they stay out of the day-to-day employment decisions of their contractors and franchisees.

"If adopted, it may result in fewer businesses being found liable for minimum wage, overtime and other similar liability under the FLSA," said John Polson, an attorney with Fisher Phillips in Irvine, Calif. "The proposed rule is intended to reduce uncertainty and inconsistency in court and agency decisions with respect to joint-employer status."

(SHRM Online)

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