Employers, another new overtime rule was just released. To complement the final rule increasing the minimum salary threshold for exempt employees, which took effect on January 1, the U.S. Department of Labor issued a final rule on December 12, 2019, clarifying that employers may offer perks and benefits to their employees without affecting the amount of overtime compensation owed. This final rule will be effective on January 15, 2020.
Prior to this new rule, the DOL’s regular rate regulations have not been significantly revised in over 50 years. At that time, typical compensation consisted predominantly of traditional wages, paid time off for holidays and vacations, and contributions to basic medical, life insurance, and disability benefits plans. Since then, the workplace and the law have changed.
First, employee compensation packages, including employer-provided benefits or “perks,” have evolved significantly. Many employers now offer various wellness benefits, such as fitness classes, nutrition classes, weight loss programs, smoking cessation programs, health risk assessments, vaccination clinics, stress reduction programs, and training or coaching to help employees meet their health goals.
Similarly, both law and practice concerning more traditional benefits, such as sick leave, have evolved in the decades since the DOL first promulgated related regulations. For example, instead of providing separate paid time off for illness and vacation, many employers now combine these and other types of leave into paid time off plans. Moreover, in recent years, a number of state and local governments have passed laws requiring employers to provide paid sick leave.
Recently, several states and cities have also begun considering and implementing scheduling laws, which require penalty payments to employees when employers utilize certain scheduling practices. Some of these laws expressly exclude the penalty payments from the regular rate under state law, and employers may be confused as they try to determine how these and other penalty payments may affect regular rate calculations under federal law.
In the new final rule, the DOL updated the regulations to reflect these and other such developments in the 21st-century workplace. The final overtime rule redefines what forms of payment employers include and exclude in the FLSA’s “time and one-half” calculation when determining overtime rates. It 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 for purposes of calculating overtime compensation.
Specifically, the final rule clarifies that employers may offer the following perks and benefits to employees without risk of additional overtime compensation liability:
- discretionary bonuses (noting that just calling a bonus discretionary does not determine whether it is actually discretionary);
- 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;
- cost of office coffee and snacks to employees as gifts;
- contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense; and
- payments for bona fide meal periods when no work is performed.
The final rule also made two substantive changes about other forms of compensation. “Call-back” pay and other payments similar to call-back pay no longer have to be “infrequent and sporadic” to be excludable from an employee’s regular rate. Also, a monetary limit related to the alternative “basic rate” that may be used in specific circumstances was changed from $0.50 to 40 percent of the higher of the applicable local, state, or federal minimum wage.