It’s not that unusual for today’s salaried employees to receive perks such as tuition reimbursement, parking benefits, and gym access. However, deciding whether certain benefits can be included in an employee’s regular rate is a common challenge for employers.
But a new rule released by the U.S. Department of Labor (DOL) will make things clearer when it comes to what benefits should be included in the regular rate of pay for employees, and maybe even make it easier for employers to extend benefits to hourly workers as well.
The final rule was released on Dec. 12, 2019, by the DOL and is to take effect Jan. 15, 2020.
It has been 50 years since the DOL has revised the definition of regular pay rate under the Fair Labor Standards Act (FLSA). Due to uncertainty, some employers opted out of offering benefits to employees in order to avoid the risk of lawsuits. This new rule is providing employers clarity on whether or not certain perks are to be included in regular pay.
Why should you know which benefits are included in regular pay? Because according to the FLSA, bonuses not eligible to be excluded from the regular rate must be added to other earnings in order to determine the regular rate on which the overtime pay must be based. In other words, the bonuses not included in the regular rate will result in you as an employer having to pay more in overtime.
What’s included in the regular rate now?
The regular rate currently covers non-exempt employees’ hourly wages and benefits, in addition to other valuable types of compensation such as bonuses and shift differentials.
What is excluded from the regular FLSA rate, however, are certain specified types of payments, such as discretionary bonuses, gifts, contributions to certain welfare plans, payments made to certain profit-sharing and savings plans, and payments for foregoing holidays and vacations.
Here’s what the new rule clarifies.
Without the risk of additional overtime liability, the final rule clarifies that employers may offer employees the following perks and benefits which can be excluded from regular rate calculation:
- The cost of providing benefits such as parking, wellness programs, onsite specialist treatment, gym access, fitness classes, employee discounts on retail goods and services, certain tuition benefits, and adoption assistance.
- Payments for unused accrued time, including sick leave compensation or paid time off.
- Payments of penalties required by state and local scheduling laws.
- Reimbursement of business expenses for items such as cell phone plans, credentialing exam fees, membership fees for organizations and travel expenses not exceeding the maximum travel reimbursement under the Federal Travel Regulation system or the optional IRS substantiation amounts for certain travel expenses.
- Sign-on and longevity bonuses.
- Cost of gifts to employees, such as coffee and snacks in the office.
- Discretionary bonuses (however, the DOL notes that the bonus label does not determine whether it is discretionary).
- Contributions for injury benefit plans, unemployment benefits, legal services or other incidents that may result in future financial distress or cost.
The final rule also provides more clarity on other forms of compensation, including payment for mealtimes and payment for "call-back". These principles are applied if/when you call an employee to come back to perform extra work. See more about “call-back” pay and other payments here.
Click here to learn more about how PrimePay can help you stay compliant.
Disclaimer: Please note that this blog is not all inclusive. Our guidance is designed only to give general information on the issues actually covered. It is not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion. Consult your own legal advisor regarding specific application of the information to your own plan.