New Fair Labor Standards Act regulations should make it easier for employers to offer perks and benefits to employees. The Department of Labor updated the regulations to clarify the distinction between payments that must be included in an employee’s “regular rate” and payments that may be excluded. Since the “regular rate” is used to calculate a non-exempt employee’s overtime rate, this relatively subtle distinction can have substantial implications.
All remuneration must generally be included in an employee’s “regular rate,” unless it is specifically excluded under the FLSA. If money given as a birthday gift, for example, had to be included in an employee’s regular rate, that employee’s overtime rate for the week would be higher than normal. Fortunately, sums paid as gifts on special occasions can be excluded from the “regular rate.” The ability to exclude certain payments from an employee’s regular rate, makes it easier for employers to provide various perks and benefits to their employees.
The new regulations, which became effective January 15, 2020, clarify various perks and benefits that may be excluded from an employee’s “regular rate,” such as:
- the cost of providing certain parking benefits, wellness programs, gym access, fitness classes, certain tuition benefits and adoption assistance;
- payments for unused paid leave, including paid sick leave or paid time off;
- payments of certain penalties required under state and local scheduling laws;
- reimbursed expenses (cellphone plans, credentialing exam fees, membership dues, travel), even if not incurred “solely” for the employer’s benefit;
- the cost of office coffee and snacks to employees as gifts;
- discretionary bonuses (clarifying that labels do not determine the discretionary nature of a bonus); and
- contributions to benefit plans for accident, unemployment, legal services or other events that could cause future financial hardship or expense.
Calculating an employee’s regular rate under the FLSA is a highly nuanced, detailed and fact-specific process. The consequences for improper wage and hour calculations can be severe. Employers should take advantage of the FLSA’s “regular rate” exclusions, but should do so cautiously, preferably with the assistance of legal counsel. Fortunately, insurance is available to protect against various employment-related liabilities in case something goes wrong. Please contact us to learn more about employment practices liability insurance.