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Perks versus pay: Department of Labor updates to regular rate requirements under the Fair Labor Standards Act take effect today.

By: Cristina N. Hyde, J.D.

As of today, employers shall be guided by updated regulations defining the type of compensation that one may include, or one must exclude, within regular rate of pay calculations. Recognizing that the existing guidance under the Fair Labor Standards Act (FLSA), 29 USC 201 et al., remained relatively stagnant for the past fifty years, the Department of Labor (DOL) has cited a need to take evolving law and modern compensation/benefits packages into consideration. According to the summary of the newly published guidance, the updates contained in the Final Rule are intended to both “provide clarity and to better reflect the 21st-century workplace.”

Specifically, the updates affect Part 778 and Part 548 of the FLSA. Regulations related to regular rate requirements are found in Part 778, and Part 548 implements section 7(g)(3) of the FLSA; permitting employers, under specific circumstances, to use a basic rate to compute overtime compensation rather than a regular rate.

What does this mean for small businesses? It means that it should be easier to offer employees perks and benefits without accidentally triggering higher rates of overtime pay or unnecessary litigation. Employers may now exclude the following from employee regular rate of pay calculations:

  • 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 (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 Regulations System or the optional IRS substantiation amounts for travel expenses are per se “reasonable payments”;
  • certain sign-on bonuses and certain longevity bonuses;
  • the cost of office coffee and snacks to employees as gifts;
  • discretionary bonuses, by clarifying that the label given a bonus does not determine whether it is discretionary and providing additional examples; and
  • contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense. DOL Fact Sheet.

In addition, the updates substantively revise the “basic rate” regulations under section 7(g)(3), eliminating the “infrequent and sporadic” requirement regarding “call back” pay, and offering additional clarification about other forms of compensation such as real payment for meal periods.

You can find the full text of the Final Rule and other supporting documentation on the Department of Labor’s website, here.

If you believe your employment compensation practices require review as a result of the changes noted above, please do not hesitate to give us a call.

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