The U.S. Department of Labor (DOL) announced a final rule to the Fair Labor Standards Act (FLSA) that takes effect on January 15, 2020.

The FLSA final rule clarifies what benefits and items should be included in an employee’s regular rate of pay to calculate overtime pay.

The final rule addresses certain confusions businesses may have regarding what to include in the regular rate of pay. In many cases, this confusion and fear of litigation risks impacted an employer’s decision to offer competitive benefits.

These clarifications may help businesses choose to offer additional employee perks and benefits without concern of adding to the cost of the regular pay calculations.

Since this is the first time in 50 years that the DOL has updated its FLSA definitions, businesses should consider conducting a regular rate audit. This may be a good opportunity to determine if the business if following FLSA requirements and if there is room for providing new employee perks.

Below, we’ve provided highlights on the FLSA final rule.

Frequently Asked Questions about Employee Regular Rate of Pay and Overtime Pay

What Employees Can Receive Overtime Pay in 2020?

According to the Fair Labor Standards Act (FLSA), only non-exempt employees are eligible for overtime pay. The act requires employers to pay employees at least the federal minimum wage ($7.75) for up to 40 hours a week. Employees should receive a pay rate of 1.5 times their regular pay for hours worked over the 40 regular hours.

It’s important to note that many states have their own minimum wage requirements.

What is an Employee’s Regular Rate of Pay?

The employee’s regular rate of pay is determined by calculating their regular hourly rate and additional compensations received during the workweek.

What Should Businesses Include in an Employee’s Regular Rate of Pay in 2020?

According to the U.S. Department of Labor, businesses should define their employee’s regular rate as “all remuneration for employment paid to, or on behalf of the employee, subject to several categories of exclusion.”

Remuneration may include the following:

  • Hourly wage
  • Nondiscretionary bonuses (including commissions)
  • Production bonuses
  • Cost of living adjustments
  • Shift premiums
  • Retroactive pay
  • Noncash compensation

What Can Businesses Exclude in an Employee’s Regular Rate of Pay in 2020?

Businesses may exclude the following compensation categories from an employee’s regular rate of pay:

  • Discretionary bonuses
  • Perks including parking benefits, wellness programs, gym access, employee discounts, etc.
  • Certain sign-on and longevity bonuses
  • Paid time off including vacation, holiday and sick time pay
  • Payments for unused paid leave
  • Business expense reimbursement including cellphone plans, membership dues, certain travel expenses, etc.
  • Contributions to benefit plans for accident, unemployment, legal services or other events that could cause future financial hardship or expense
  • Gifts including office coffee, snacks, etc.
  • Premium payments for work performed outside regular work hours
  • Extra compensation paid through an agreement between employer and employee
  • Income from grants or options

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