The U.S. Department of Labor (DOL) has taken recent steps to help employers comply with the Fair Labor Standards Act (FLSA).
The DOL’s Final Rule, which took effect January 15, 2020, clarified the types of employee benefits that may be excluded from a nonexempt employee’s “regular rate.” The FLSA requires payment of at least 1.5 times a nonexempt employee’s regular rate for hours worked over 40 in a workweek.
With limited exclusions, the “regular rate” includes “all remuneration for employment paid to, or on behalf of, the employee,” including nondiscretionary bonuses and nondiscretionary incentive payments. In contrast, employers may exclude discretionary bonus payments from a nonexempt employee’s regular rate.
What Is Excluded?
Under the Final Rule, the following items may be excluded from “regular rate” calculations:
- Pay for unused paid leave;
- Sign-on and longevity bonuses, gifts, and discretionary bonuses;
- Compensation for bona fide meal periods;
- Reimbursement for cell phone plans and travel (even if not solely used for the employer’s benefit);
- Certain overtime premiums;
- Payment of state and local penalties;
- Contributions to benefit plans, including accident, unemployment, and legal services; and
- Other benefits, such as parking, wellness programs, on-site specialist treatment, gym and fitness memberships, employee discounts on retail goods and services, and tuition.
In addition, the DOL also released an Opinion Letter on January 7, 2020, clarifying how employers should incorporate nondiscretionary incentive payments that cover more than one workweek into a nonexempt employee’s “regular rate.”
Specifically, the DOL confirmed that—absent a basis for tying bonus earnings to particular workweeks in a bonus period—”the appropriate method” for computing bonuses into overtime pay is to allocate bonuses equally to each week of the bonus period. Notably, however, the DOL’s Opinion Letter illustrates that the workweeks to be included in that calculation are limited to those during which the bonus was actually earned.
More Changes Made
On January 12, 2020, the DOL issued another Final Rule to revise its interpretation of joint employer status under the FLSA.
The Final Rule provides updated guidance for determining joint employer status when an employee performs work for an employer that simultaneously benefits another individual or entity, including guidance on the identification of certain factors that are not relevant when determining joint employer status.
Among the most helpful aspects of this Final Rule are a number of examples applying the DOL’s guidance for determining FLSA joint employer status in a variety of different factual situations.
On May 20, 2020, the DOL issued a Final Rule that allows employers to pay bonuses or other incentive-based pay to salaried, nonexempt employees whose hours vary from week to week. The final rule clarifies that payments in addition to the fixed salary are compatible with the use of the fluctuating workweek method under the FLSA.
Each of these updates is intended to make FLSA compliance easier on employers and promote creative thinking in terms of how employers compensate employees. Whether those lofty goals will come to fruition remains to be seen.
To get a more in-depth look at the recent changes to the FLSA, join Brenner for the live webinar, “Critical FLSA Update: Recent Legal Changes That Will Affect Your Company,” on Wednesday, August 19, 2020. Brenner will help you understand the DOL’s final rule providing clarification on how to determine employees’ regular rate of pay and what forms of payment employers can include and exclude in the overtime pay calculation. Click here to learn more, or to register today.
Jeremy M. Brenner is an attorney at Armstrong Teasdale LLP in St. Louis, Missouri, and can be contacted at jbrenner@armstrongteasdale.com.