The Department of Labor (DOL) recently announced its final decision on the calculation of the regular rate of pay, effective on January 15, 2020. The new rule clarifies common overtime pay issues and will allow employers to offer perks and benefits to their employees more efficiently.
Previous rules about the regular rate of pay
Under the Fair Labor Standards Act (FLSA), the regular rate of pay includes hourly wages and salaries for non-exempt workers in a 40-hour, non-overtime workweek. The regular rate is not necessarily the same as an employee’s base hourly rate of pay. Therefore, when calculating overtime, the regular rate may include variables such as hourly rate plus nondiscretionary bonuses.
Although the rules specify when an employee is eligible to receive overtime pay, the current regulations leave employers unclear about where benefits and perks fit in the regular rate of pay.
New rules about the regular rate of pay
The new rule clarifies the confusion employers often face regarding when to include perks and benefits in the regular rate of pay for the purpose of calculating overtime.
The regular rate calculation can exclude benefits or perks such as unused paid leave or business expense reimbursements. Certain sign-on bonuses and employer contributions to benefit plans can also be excluded. Check out the full list of excluded benefits and perks here.
Steps you can take now
- Audit your employees’ regular rates of pay used for calculating overtime to determine if changes need to be made.
- Carefully decide when to exclude bonus amounts from the regular rate. Labeling a bonus as discretionary cannot on its own support it being excluded from the regular rate.
- Determine if your state’s overtime pay law matches the federal overtime law — state laws might have stricter rules about overtime calculations. As a reminder, the rule that benefits the employee the most must be the one you use.
The DOL expects the final rule to encourage some employers to start providing benefits they previously avoided, which might have a positive impact on workplace morale, employee compensation, and employee retention. Take a look at the FAQs published by the DOL for more info on the regular rate final rule.
We’re here to help! Contact your payroll specialist if you have any questions or if you need to make changes to overtime pay for your employees.