Employers must include COVID-19 incentive payments, such as hazard pay, in an employee’s regular rate for calculating overtime payments, the U.S. Department of Labor (DOL) stated in recent guidance.
What New Guidance Says
Employers may compensate nonexempt employees in a variety of ways. To calculate the amount of overtime pay, you must first determine the employee’s regular rate of pay. Generally, you find it by dividing total compensation for employment, less any statutory exclusions, by the total number of hours worked. The Fair Labor Standards Act (FLSA) provides an exhaustive list of payments you may exclude from the regular rate when calculating overtime payments.
The DOL’s recent guidance clarified that employer-paid incentive payments—including hazard pay for work performed during the COVID-19 emergency—do not meet any statutorily authorized exclusion and thus must be included in the regular rate used to compute employees’ overtime pay. The requirement applies to both private and state or local government employers that have opted to provide incentive payments to employees for working during the crisis. The guidance specifically delineates between:
- Employer-provided incentive pay, which you must include in the regular rate used to calculate employees’ overtime pay; and
- Incentive payments provided to employees by a state or local government, which you may exclude from the regular rate.
Employers also may exclude any indirect state or local government incentive payments that use employers as an intermediary to facilitate the transactions, unless you have agreed to treat the government-provided payments as compensation for employment. Upon any express or implicit agreement between an employer and its employees to treat government-provided incentive payments for work performed during COVID-19 as compensation for their efforts, the employer must include the amounts in calculating the regular rate.
If you’ve opted to provide incentive payments, including hazard pay, to employees for work during the coronavirus emergency, be sure to include the amounts in the regular rate when calculating any overtime compensation owed to them. If you have questions about the calculations, contact experienced counsel.