Tag: Overtime Rules

FLSA Update: New Regulations Clarify Wage & Hour Calculation for Perks and Benefits

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.

Now What? Preparing for the New FLSA White Collar Overtime Exemptions

On December 1, 2016, it will be more expensive for employers to take advantage of the Fair Labor Standards Act’s (FLSA) so-called white collar overtime exemptions. Since FLSA violations have always been expensive, employers should begin the process of determining whether and to what extent they will be affected by the new overtime exemption regulations .

The new rules focus primarily on the minimum salary and compensation levels needed to qualify for the FLSA’s executive, administrative, professional, and computer employee overtime exemptions. Employers can ask the following questions to determine the potential impact of the new overtime rules.

Are there any employees classified as exempt under one of the FLSA’s white collar overtime exemptions? If no, you should not be affected by the higher standard salary levels under the new rules. If yes, move on to the next question.

Do any of these employees ever work more than 40 hours in a workweek? If no, you should not be affected by the higher standard salary levels under the new rules. If yes, move on to the next question.

Do any of these employees earn a salary of less than $913 per week? (This works out to $1,826 biweekly, $1,978 semimonthly, $3,956 monthly or $47,476 annually.) If no, you should not be affected by the higher standard salary levels under the new rules. If yes, exemption classifications and compensation practices will need to be adjusted before December 1, 2016 to avoid violating the new rules.

Various adjustments can be made to ensure compliance under the new rules. However, the most appropriate adjustment(s) will likely depend on each employer’s specific circumstances, such as the number of newly-nonexempt employees, their salaries, how often they work overtime and how much overtime they work.

Depending on their circumstances, employers may implement one or more of the following adjustments.

Increase Salaries. The obvious adjustment, and the one likely envisioned by those enacting the new rules, would be to increase the salaries of exempt white collar employees to no less than $913 per week. Though this may be the simplest and least disruptive adjustment, it may also be the most unrealistic. Though salary increases for some employees may be nominal, they can be more than double for others.

[Remember, employees are not exempt simply because their salaries satisfy the increased salary levels under the new rules. Their primary job duties must also involve the kind of work associated with the specific white collar exemption. Employees must satisfy the minimum salary level requirement and the applicable “standard duties test” to be exempt.]

Pay Newly-Nonexempt Employees Overtime Compensation. The alternative to increasing salaries is to re-classify these exempt white collar employees as overtime-eligible employees. If they work more than 40 hours in a workweek, they must be paid one and a half times their regular rate. As with other nonexempt employees, employers must track the number of hours worked each day and the total hours worked each workweek by newly-nonexempt employees. For many, this will be an entirely new experience and will take some getting used to.

This may not be a problem for employees who rarely work or who work very little overtime. These employees can continue working the same number of hours. Though employers will pay more for occasional overtime work, they may still be paying substantially less than $913 per week. The same cannot be said about employees who regularly work or who work a lot of overtime. The cost of paying time and a half to these employees could be very high, and may even approach $913 per week.

Prohibit Overtime. Newly-nonexempt employees can be prohibited from working overtime. If no overtime is worked, no overtime compensation is required. This option may be simple, but it may not be easy. Exempt employees typically work more than 40 hours in a workweek because they have more than 40 hours of work to do. This work must still get done, but someone else will have to do it.

Adjust Personnel, Schedules or Assignments. Those who prohibit overtime may have to make various operational adjustments. For example, workload distribution and workforce scheduling may need to be adjusted to compensate for the loss of overtime work. In some cases, new employees may need to be hired to make up for any lost productivity.

Adjust Wages. If newly-nonexempt employees are allowed to continue working overtime as always, employers will end up paying more money for the same amount of work. Reallocating regular wages and overtime compensation is a way to keep the hours worked by and the amount paid to newly-nonexempt employees largely the same. However, employers may not reduce an employee’s hourly wage below the highest applicable minimum wage (federal, state, or local) or continually adjust wages each workweek in order to manipulate the regular rate.

Employers cannot wait too long to begin planning for the upcoming change. It takes time to properly implement organizational adjustments to exemption classifications and compensation practices, particularly if they are substantial or complex. With all the publicity surrounding the new white collar overtime exemption rules, it’s probably safe to assume that violations will be noticed not only by those employees who are affected by the new rules, but by the Department of Labor too.

Since the Final Rule is sure to bring a level uncertainty and confusion, employers may benefit from having Employment Practices Liability Insurance to protect against various employment-related claims. Limited coverage for wage and hour claims may be available.

Please contact us if you would like to learn more about complying with the FLSA’s new white collar overtime exemption rules.

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