On January 15, 2020, new rules from the U.S. Department of Labor took effect that explain how employers must calculate employee pay rates. These rules, of course, impact the pay rate for overtime wages for non-exempt employees who work more than 40 hours in a work week.
The DOL had not updated the definition of “regular rate of pay” for a half-century. Fifty years ago, most non-exempt employees earned hourly wages or salaries plus benefits like health insurance, pensions, and paid time off. Employers desperately needed new and updated guidance on what is includable in employees’ regular rates of pay for purposes of calculating overtime because, in the last fifty years, all kinds of employment perks were offered – such as benefits related to fitness, wellness, parking, technology, and the like.
Because employers were unsure about whether they had to include in regular base pay the value of certain new, unique benefits, some have just not offered them for fear overtime would get too expensive or because of the uncertainty about whether excluding them would violate the law.
Under current regulations, the regular rate of pay for non-exempt employees include wages and salaries, certain bonuses, commissions, on-call pay, and shift-deferential pay. The amount due for an hour of overtime worked is 1.5 times the regular rate calculated to include all these benefits. Excluded from regular pay rates are paid time off, health coverage, discretionary bonuses, and some gifts.
Under the new rules, examples of benefits that may be excluded from regular pay rates include:
- Gym memberships and fitness classes;
- Discretionary bonuses (defined by features of bonus plan, not by its label);
- Parking benefits;
- Employer-provided coffee and snacks in the workplace;
- Wellness programs;
- Some signing and longevity bonuses;
- Adoption support;
- Unused paid time off or PTO;
- Retail discounts;
- Some tuition benefits;
- Specialist treatments in the workplace such as chiropractic or massage;
- Certain employer contributions to benefit plans;
- Employer scheduling-law penalties;
- Business expense reimbursements like for mobile phone plans, professional organization dues, professional examination fees, and certain travel expense amounts.
This is a high-level snapshot of complex, but non-controversial, federal regulations about what benefits make up regular pay rates for purposes of overtime wage calculations. Employers should work with legal counsel to look at the new rules and determine if they will change how regular rates have been calculated or influence a decision to offer some new perks, keeping in mind the impact of state law provisions that may be different.