Top 10 Things to Know About the New FLSA Overtime Calculations

IN DEPTH

There are new regulations affecting overtime calculations under the Fair Labor Standards Act (FLSA). The US Department of Labor (DOL) has promulgated these to “provide clarity and to better reflect the 21st-century workplace.” Their effective date is January 15, 2020.

As a reminder, the FLSA requires that employers pay overtime at one and one-half times an employee’s “regular rate” of pay for hours in excess of 40 per week. There are, of course, some jobs that are exempt from overtime under the FLSA; these regulations affect only overtime-eligible jobs.

Under the FLSA, “regular rate” is a legal term of art. This calculation includes all remuneration paid to the employee (minus payments falling into specific statutory exceptions) divided by the hours worked during the workweek in question. 29 CFR § 778.108 et seq.

The DOL’s 2020 regulatory updates address whether certain forms of compensation can be excluded from an employee’s regular rate of pay. Here is an executive summary of what you should know about what is being changed or clarified:

1. Pay for unused paid leave (including paid sick leave or holidays) may now be excluded from an employee’s regular rate of pay.
2. Pay for time that would not otherwise qualify as hours worked (e.g., bona fide meal periods) can also be excluded from an employee’s regular rate of pay, unless an agreement or established practice indicates that the parties have treated the time as hours worked.
3. Reimbursed expenses need not be incurred “solely” for the employer’s benefit for the reimbursements to be excludable from an employee’s regular rate.
4. Certain reimbursements that are at or beneath the maximum reimbursable amount under the Federal Travel Regulation are per se reasonable and excludable from the regular rate.
5. The regulations no longer require that “call-back” pay and other similar payments be “infrequent and sporadic” to be excludable from an employee’s regular rate as long as such payments are not prearranged.
6. Employers can exclude from the regular rate any payments to employees pursuant to state and local scheduling laws for occasions when the employee reports to work but is not given the expected amount of work.
7. Certain employer-provided perks or benefits—for example, an employee discount program, wellness program or onsite exercise opportunities—may be excluded from an employee’s regular rate of pay.
8. The regulations provide additional examples of benefit plans that are excludable from the regular rate, including unemployment, legal services and accident plans.
9. Discretionary bonuses are excluded from the regular rate if (a) both the fact that the bonuses are to be paid and the amounts are determined at the sole discretion of the employer at or near the end of the bonus periods, and (b) the bonuses are not paid pursuant to any prior agreement or promise causing the employee to expect such payments regularly.
10. Sign-on bonuses with no clawback provision are excludable from the regular rate; sign-on bonuses with a clawback are also excluded except where the clawback is pursuant to collective bargaining agreement or, for government employers, due to ordinance or policy.

Doing the regular rate seems like elementary math. But defining the terms of what is and is not included is far more complex and fraught with risk. An employer’s failure to properly calculate the regular rate can generate liability under the FLSA, which has a three-year statute of limitations and allows for recovery of unpaid wages, liquidated damages, and attorneys’ fees.

Your New Year’s resolutions should include checking to make certain that your approach to the “regular rate” is perfect. These new regulations are undeniably more explicit and, thus, more employer friendly. Yet, getting the “regular rate” right is still a genuine effort: an important effort, a necessary effort, but complex and comprehensive.