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U.S. Labor Department Proposes Update to ‘Regular Rate' Definition

    Client Alerts
  • April 10, 2019

Human resources professionals’ eyes sometimes start to glaze over when the discussion turns to technical definitions of overtime calculations. However, the meaning of the term “regular rate” under the Fair Labor Standards Act is crucial to understanding how nonexempt employees must be paid for hours worked over 40 in any given workweek. On March 29, DOL’s Wage and Hour Division proposed the first updates to the regular rate definition in more than 50 years. The rules are intended to clarify the definition and bring it in line with modern compensation practices.

The regular rate is the hourly rate upon which time and-one half overtime is based. The term includes not just the employee’s hourly wage but other types of compensation. Including or excluding forms of compensation from the regular rate can make a tremendous difference in terms of the amount of overtime pay owed. If finalized, these changes would give employers a greater degree of confidence that their pay practices conform with FLSA requirements.

Much of the new proposal explains which fringe benefits will and will not be included in the regular rate. The rule would allow employers to exclude from the rate things like (a) wellness program perks like gym memberships, (b) payments for accrued but unused paid time off amounts, (c) reimbursed expenses, including travel expenses that comply with federal limits on reimbursements, (d) certain benefit plans such as legal services, and (e) tuition reimbursement and student loan paydown policies, which have become popular benefits in recent years.

Discretionary bonuses are already excluded from the regular rate calculation. The new regulations would better distinguish between discretionary and incentive bonuses, providing examples of both categories. Finally, the proposal would clarify that payments for certain non-working time such as meal breaks can be excluded from the regular rate calculation. DOL is accepting comments on the proposed regulations through May 28.