Department of Labor Announces Final Rule for Calculating Overtime Rates of Pay
The United States Department of Labor announced a Final Rule to take effect on January 15, 2020 that should make it easier for Employers to properly calculate overtime rates of pay. Employers generally know that non-exempt employees must be paid an overtime rate for the number of hours worked beyond 40 hours in any workweek, and that the overtime rate of pay must be no less than 1-1/2 times the “regular rate of pay.” What is sometimes confusing is what the regular rate of pay is.
The Fair Labor Standards Act defines “regular rate of pay” as the weighted average of an employee’s hourly rate, which is calculated by dividing the total pay in any workweek by the total number of hours worked. The question becomes: what goes into the determination of an employee’s regular rate of pay? Under the new regulation, the following may be excluded from that determination:
- The cost of providing certain parking benefits, wellness programs, onsite specialist treatment, gym access and fitness classes, employee discounts on retail goods and services, certain tuition benefits, and adoption assistance.
- Payment for unused paid leave.
- Payments of certain penalties required under state and local scheduling laws.
- Certain reimbursed expenses, even if not incurred solely for the Employer’s benefit.
- Reimbursements that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System or the optional IRS allowances for travel expenses will be deemed per se “reasonable payments.”
- Certain sign-on bonuses and longevity bonuses.
- The cost of Employer supplied refreshments such as coffee.
- Discretionary bonuses (by way of a clarifying definition of “discretionary bonus.”)
- Contributions to benefit plans for an accident, unemployment, or legal services.
- Certain meal time payments. (Payments for meal times standing alone will not establish those payments as being for time worked.)
- Call back pay.
Despite this clarifying regulation, the computation of the proper overtime rate of pay, especially for non-exempt salaried employees, employees paid on a piece-rate basis or employees paid on a fluctuating workweek basis can be confusing and the penalties Employers face for a miscalculation can be severe. Employers should, therefore, be sure they have calculated overtime rates properly in accordance with not only federal and state wage laws but with any collective bargaining agreement that might apply.
If you have any questions, or would like additional information, please contact Bob Small, Partner in Reger Rizzo & Darnall’s Employment Practices Group, at 215.495.6541, or via email at firstname.lastname@example.org.
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