The U.S. Department of Labor (DOL) announced on March 7, 2019 a Notice of Proposed Rulemaking (NPRM) that would raise the minimum salary threshold for exempt employees while making more American workers eligible for overtime. The DOL projects that the new regulations will take effect in January 2020.
Workers earning at the current level (set back in 2004) may be eligible for overtime based up on job duties. The new rule, if passed, updates the standard salary level from $455 to $679 p/wk. ($35,308 per year) under proposed rules from the DOL. Currently, those earning salaries below $455 p/wk. ($23,660 annually) must be paid overtime after 40 hours a week.
Notably there were no changes to the job duties tests nor was a provision for automatic adjustments to the salary threshold included.
The proposed regulations will, if adopted, clarify and greatly simplify the overtime pay calculations for non-exempt employees under the federal Fair Labor Standards Act (FLSA). The DOL has not updated the regular rate regulations in more than 50 years, so the proposed regulations are intended to better define and streamline the regular rate for today’s workplace practices.
Under the FLSA, overtime compensation is based on the employee’s regular rate of pay, which is a legal term of art and is not necessarily equal to the employee’s base hourly rate of pay if the employee receives certain types of additional compensation beyond the base hourly wage. Under the current regulations, employers may be discouraged from offering forms of bonus pay that must be included in the regular rate when calculating overtime, as well as certain “perks” which must also arguably be included in the regular rate.
Proposed Updates to Regulations About “Regular Rate of Pay”
The DOL has proposed updating its regulations to:
- Clarify that the cost of providing wellness programs, onsite specialist treatment, exercise opportunities, employee discounts on retail goods and services, and certain tuition benefits may be excluded from an employee's regular rate of pay;
- Clarify and provide examples of discretionary bonuses that may be excluded from an employee's regular rate of pay;
- Eliminate the restriction that "call-back" pay and other payments similar to call-back pay must be "infrequent and sporadic" to be excluded from an employee's regular rate, while maintaining that such payments must not be so regular that they are essentially prearranged; and
- Clarify that reimbursed expenses need not be incurred "solely" for the employer's benefit for the reimbursements to be excluded from an employee's regular rate of pay.
Expanded Discretionary Bonus Definition
Under the current regulations, discretionary bonuses are excluded from the regular rate while nondiscretionary bonuses are included. The proposed regulations expand the definition of discretionary bonuses by listing the following as examples of bonuses that may be deemed discretionary:
- Bonuses to employees who make unique or extraordinary efforts that are not awarded according to pre-established criteria
- Severance bonuses
- Bonuses for overcoming challenging or stressful situations
- Employee of the month bonuses
- Similar compensation
These examples may encourage employers to offer such bonuses as they may be excluded from the regular rate.
Cashed-Out Paid Leave Would Not Be Included In Regular Rate
The current regulations also provide that, if an employee takes time off from work and uses paid leave (such as vacation or sick leave), the payment is not included in the regular rate. Under the proposed regulations, if an employee cashes out paid leave instead of taking the time off, that payment also is not included in the regular rate. This proposal may encourage employers to allow employees to cash out paid leave in lieu of taking the time off from work.
Additionally, the proposed regulations provide that the following may be excluded from the regular rate:
- The cost of providing wellness programs, onsite specialist treatment, gym access and fitness classes, and employee discounts on retail goods and services
- Reimbursed expenses, even if they are not “solely” for the employer’s benefit
- Reimbursed travel expenses that do not exceed the maximum travel reimbursement permitted under the Federal Travel Regulation System regulations and meet other regulatory requirements
- Pay for time that does not qualify as “hours worked,” including bona fide meal periods (unless an agreement or established practice indicates the parties have treated the time as hours worked)
- Benefit plans, including accident, unemployment and legal services
- Tuition programs, such as reimbursement programs or repayment of educational debt
The proposed regulations do not have the effect of law as of yet. The public may submit comments to the DOL regarding the proposed regulations through May 28, 2019. The DOL will consider the comments before issuing the final regulations, which may differ from the proposed regulations but will have the effect of law.
The DOL is currently seeking public comment regarding the proposal to satisfy notice-and-comment rulemaking. The public (including employer groups) will have 60 days from the time the proposed regulations are officially published in the Federal Register to comment.
Should you wish to submit comments, use identifying Regulatory Information Number: (RIN) 1235-AA20, and deliver by either of the following methods:
- Electronic Comments: Submit comments through the Federal eRule-Making Portal. Follow the instructions for submitting comments.
- Mail: Address written submissions to Melissa Smith, Director of the Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue, N.W., Washington, D.C. 20210.
After the comment period ends, the DOL will respond to comments and possibly make revisions before publishing a final rule. This final rule will include a formal effective date.
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