Employer Alert: New Overtime Rule Effective January 15, 2020

As 2019 comes to a close and the promise of a brand new year is before us, so are the U.S. Department of Labor’s (“DOL”) newest rules on overtime.  As we recently addressed here, the DOL released its final rule addressing the new salary thresholds employers are required to pay in order to satisfy the “salaried basis” requirement for the “white collar” overtime exemptions.  These thresholds become effective January 1, 2020.  This article focuses on another overtime rule the DOL recently finalized clarifying which benefits should be included in workers’ “regular rate of pay” used to calculate overtime premiums.

Under the Fair Labor Standards Act, nonexempt employees generally must be paid one and one-half times their regular rate of pay for all hours worked beyond 40 in a workweek.  But it has been unclear what must be included in the regular rate other than an employee’s base hourly wage.  The regular rate currently includes hourly wages and salaries for nonexempt employees plus most bonuses, shift differentials, on-call pay and commissions.  Health insurance premiums, paid leave, holiday and other discretionary bonuses, and certain gifts are not included.  The status of other benefits were not addressed causing some employers to shy away from offering additional perks to employees for fear of litigation.

For the first time in fifty years, the DOL has revised the list of benefits that can be excluded from the regular rate, many of which have gained popularity over the past twenty years.  For example, for those of us that could benefit from working off a few (or way too many) holiday treats, the DOL has clarified that gym membership fees do not have to be included in the regular rate.

The rule also clarifies that employers may exclude the following employer-provided benefits 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 (whether paid to an employee, an education provider, or a student-loan program), and adoption assistance;
• Unused paid leave, including paid sick leave or paid time off;
• Certain penalties employers are required to pay under state and local scheduling laws;
• Reimbursed business expenses 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 DOL noted that the label given to a bonus doesn’t determine whether it is discretionary); and
• Contributions to benefit plans for accidents, unemployment, legal services or other events that could cause future financial hardship or expense.

This new rule will take effect on January 15, 2020.  Employers should start reviewing their benefit packages and determine if any benefits should be removed from their overtime calculations or if there are any perks that could be offered in the new year.

For more information or assistance with implementing this change, contact your Gentry Locke Employment Law Team.

Source: https://www.govinfo.gov/content/pkg/FR-2019-12-16/pdf/2019-26447.pdf