On March 28, 2019, the U.S. Department of Labor (“DOL”) announced a proposed rule to update the regular rate requirements under 29 CFR part 778 and section 7(e) of the Fair Labor Standards Act (“FLSA”). The FLSA requires employers to pay non-exempt employees overtime compensation for any time worked over 40 hours in a workweek. The overtime rate equals one and one-half times the “regular rate,” which is defined as “all remuneration for employment paid to, or on behalf of, the employee,” with some exceptions. More specifically, the regular rate must include wages, bonuses, commissions, and any other forms of compensation.

Court decisions interpreting what must be included in the calculation of the “regular rate” have caused confusion for employers, who may be unsure whether offering non-exempt employees extra perks could increase the regular rate and, by extension, overtime pay. In addition, the uncertainty stemming from what must be included in the “regular rate” could lead to costly wage and hour actions by employees.

When announcing the new proposed rule, the DOL opined that the current regulations “do not sufficiently reflect … developments in the 21st-century workplace,” and stated that the following forms of compensation would be excluded from an employee’s regular rate:

• the cost of providing wellness programs, onsite specialist treatment, gym access and fitness classes,
• and employee discounts on retail goods and services;
• payments for unused paid leave, including paid sick leave;
• reimbursed expenses, even if not incurred “solely” for the employer’s benefit;
• certain reimbursed travel expenses;
• discretionary bonuses;
• benefit plans, including accident, unemployment, and legal services; and
• tuition programs, such as reimbursement programs or repayment of educational debt.

The proposed rule also seeks to clarify whether other forms of compensation, such as payments for meal periods, call-back pay, and others, must be included in the regular rate.

The proposed rule will remain open to comments until May 28, 2019. Employers with questions regarding the calculation of the “regular rate” (or other compensation-related issues) would do well to consult with able counsel.