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DOL Finalizes New Regular Rate of Pay Rule

The United States Department of Labor (DOL) is providing employers with more flexibility to offer perks and benefits to employees in line with the regular rate of pay used to calculate overtime under the Fair Labor Standards Act (FLSA).


The DOL announced the final rule on Thursday and it will take effect Jan. 15, 2020. It’s the first time in 50 years that the FLSA definition of the regular rate of pay has been updated.

The FLSA’s regular rate requirements define what forms of payment employers include and exclude when calculating time and one-half overtime pay for an employee. Currently, the regular rate includes hourly wages and salaries for nonexempt workers, most bonuses, shift differentials, on-call pay and commissions. It excludes health insurance, paid leave, holiday and other discretionary bonuses and certain gifts.

When it proposed an update to the rule in March, the DOL said that because of uncertainty under the current rules, employers are “discouraged from offering more perks to their employees.”

“This final rule encourages employers to invest in the American workforce, to the benefit of their employees,” U.S. Labor Secretary Eugene Scalia said in the DOL release. “In a robust economy with a million more open jobs than job seekers, we must allow employers to offer perks and benefits that will attract talent for open jobs and compensate employees for their hard work. This rule is an important step in that direction.”

The new rule clarifies that employers may exclude the following perks from the regular rate calculation:

  • Parking benefits, wellness programs, onsite specialist treatments, gym access and fitness classes, employee discounts on retail goods and services, certain tuition benefits, and adoption assistance;
  • Unused paid leave;
  • Certain penalties employers must pay under state and local scheduling laws;
  • Business expense reimbursement for items such as cellphone plans, credentialing exam fees, organization membership dues and travel expenses that don’t exceed the maximum travel reimbursement under the Federal Travel Regulation system or the optional IRS substantiation amounts for certain travel expenses;
  • Certain sign-on and longevity bonuses;
  • Complimentary office coffee and snacks;
  • Discretionary bonuses (The label given to a bonus doesn’t determine whether it is discretionary, the DOL clarified.); and
  • Contributions to benefit plans for accidents, unemployment, legal services and other events that could cause a financial hardship or expense in the future.

The final rule also includes additional clarification about other forms of compensation, including payment for meal periods and “call back” pay.

About the Author

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Brett Christie is a staff writer at WorldatWork.

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