The U.S. Department of Labor (DOL) has issued a final rule updating the "regular rate of pay" standard used to calculate overtime pay under the Fair Labor Standards Act (FLSA), according to a notice to be published in the Federal Register Dec. 13.
In the rule, DOL clarifies when certain employer benefits may be excluded when calculating overtime pay for a non-exempt employee, including bona fide meal periods, reimbursements, certain benefit plan contributions, state and local scheduling law payments and more. The rule also clarifies how employers may determine whether a bonus is discretionary or nondiscretionary.
The rule will take effect Jan. 12, 2020.
The rule will likely result in employers taking a closer look at their benefits packages, Susan Harthill, partner at Morgan Lewis, told HR Dive in an emailed statement.
A number of employer advocates that submitted comments on DOL’s Notice of Proposed Rulemaking (NPRM), including the Society for Human Resource Management, supported excluding employee benefits like gym memberships, tuition assistance and adoption and surrogacy services from regular rate calculations. Gym memberships and tuition assistance are generally excludable, according to DOL, but the agency said only some forms of adoption assistance would be excludable and that most surrogacy assistance payments would not be.
Employers also inquired about public transportation and childcare subsidies. In the final rule, DOL said public transportation benefits would not be excludable, noting that the agency "has long acknowledged that employer-provided parking spaces are excludable from the regular rate but commuter subsidies are not." But it did add clarifying language around childcare, saying that while "routinely-provided childcare" must be included in the regular rate, emergency childcare services — if those services are not provided as compensation for hours of employment and are not tied to the quantity or quality of work performed — may be excluded.
DOL also offered additional details about its treatment of tuition reimbursement and education-related benefits. As it stated in the NPRM, the agency said that as long as tuition programs are offered to employees regardless of hours worked or services rendered are "contingent merely on one’s being an employee," such programs qualify as "other similar payments" excludable from the regular rate. This includes payment for an employee's current coursework, online coursework, payment for an employee’s family member’s tuition and certain student-loan repayment plans, DOL said.
HR teams should respond by performing audits of the pay codes for benefits that would be impacted, Tammy McCutchen, shareholder at Littler Mendelson, told HR Dive in an interview: "This is a good time to get your calculations correct." McCutchen suggested that employers conduct audits first before deciding whether to expand benefits options in light of the rule. She added that it's an employer's responsibility to notify payroll providers of any changes to exemptions.
Employers also will need to check state laws and consult with counsel ahead of implementing changes to employees' regular rates, as those laws may differ from DOL's new rule, Harthill said. Moreover, "[t]his is an interpretive rule and it remains to be seen whether courts will defer to DOL's interpretation of the rule or if any resultant exclusions are challenged," she added.