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US Changes Rules on 'Regular Rate' of Compensation

January 13, 2020
 
The US Department of Labor (DOL) released new rules late last year governing the specific types of benefits that are to be excluded from the “regular rate” computation – meaning that they do not need to be counted as part of an employee’s wages for purposes of determining overtime.
 
The general rule is that in order to comply with the fair labor standards act (FLSA) overtime provisions employers must calculate a non-exempt employee’s overtime pay at one-and-a-half times the employee’s “regular rate” of pay. Under the FLSA, the “regular rate” includes: 
  • “all remuneration for employment paid to, or on behalf of, the employee,” with the exception of gifts, certain reimbursements, health insurance or pension contributions, daily overtime, holiday pay, and stock options. 
The existing exceptions include: 
  • Gifts and payments on special occasions;
  • Payments made for occasional periods when no work is performed, such as vacation or sick pay, reimbursements for work-related expenses, and other similar payments that are not compensation for hours of employment; 
  • Discretionary bonuses, payments to profit-sharing or thrift or savings plans that meet certain requirements, and certain talent fees; 
  • Contributions to a bona fide plan for retirement, or life, accident, or health insurance; 
  • Extra compensation provided by a premium rate for certain hours worked in excess of eight in a day, 40 hours in a work week, or the employee's normal working hours; 
  • Extra compensation provided by a premium rate for work on Saturdays, Sundays, regular days of rest, or the sixth or seventh days of the workweek; and 
  • Extra compensation provided by a premium rate pursuant to an employment contract or collective bargaining agreement for work outside of the hours established therein as the normal workday (not exceeding eight hours) or workweek (not exceeding 40 hours). 
The new regulations expand the existing exceptions to include: 
  • Certain parking benefits, wellness programs, onsite specialist treatment, gym access and fitness classes, employee discounts, certain tuition benefits, adoption assistance;
  • Payments for unused paid leave;
  • Certain reimbursed expenses beyond expenses incurred “solely” for the employer’s benefit;
  • Certain sign-on and longevity bonuses;
  • Office coffee and snacks provided to employees;
  • Discretionary bonuses; and
  • Certain contributions to benefit plans.
The new regulations also eliminate the current rule that call-backs must be “infrequent and sporadic” to be excluded from overtime calculations.
 
The regulation establishing the new exclusions will take effect today. Employers may view the information in more detail by clicking on the following link here.
 
Massachusetts state law does not appear to present any obstacles for employers reviewing the new federal law. Massachusetts defines the regular hourly rate to include:
 
Regular Hourly Rate. The amount that an employee is regularly paid for each hour of work. When an employee is paid on a piece work basis, salary, or any basis other than an hourly rate, the regularly hourly rate shall be determined by dividing the employee’s total weekly earnings by the total hours worked during the week.
 
Regardless of the basis used, an employee shall be paid not less than the applicable minimum wage each week. The regular hourly rate shall include all remuneration for employment paid to, or on behalf of, the employee, but shall not include: 
  • sums paid as commissions, drawing accounts, bonuses, or other incentive pay based on sales or production; or
  • sums excluded under 29 U.S.C. § 207(e). (This refers to the changes in the federal law highlighted above and means that Massachusetts incorporates all of them by reference.)
The January 2020 AIM HR Roundtables will feature an assistant attorney general from the Fair Labor Division discussing the agency’s role in enforcing the state’s wage-and-hour laws. Please contact Melissa Wotus at mwotus@aimnet.org to register.
 
Employers interested in learning more about this issue, or other Fair Labor Standards Act-related issues, may call the AIM Employer Hotline at 800-470-6277. 
 
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