On January 15, 2020, the Department of Labor’s new interpretive guidelines regarding what should be included in employees’ regular rates of pay went into effect. As an initial matter, employers should note that these guidelines do not rise to the level of a regulation and do not have the effect of law. 29 C.F.R. § 778.1; Madison v. Res. For Human Dev., Inc., 233 F.3d 175, 185-86 (3d Cir. 2000); Baouch v. Werner Enters., Inc., 908 F.3d 1107, 1117 (8th Cir. 2018). Therefore, courts are not required to follow the new guidelines, but will generally treat them as persuasive given that the DOL handles and regulates the application of the Fair Labor Standards Act. Baouch, 908 F.3d at 1117.
Employers use employees’ regular rates of pay to determine employee overtime compensation under the Fair Labor Standards Act. The new guidelines help employers understand what perks and benefits should and should not be included in calculating employees’ regular rate. These are the first major updates to the regular rate guidelines in over 50 years, and are crucial for employers because employee compensation packages, including employer-provided benefits and “perks,” have expanded significantly in that time frame. The Bureau of Labor Statistics estimated that fringe benefits comprised only five percent of employees' total compensation in 1950. Today, such benefits make up approximately one-third of total compensation. 84 FR 68736.
- Give themselves a credit toward any overtime compensation due for any premiums paid to employees for working in excess of a daily or weekly standard (such as 8 hours a day, 40 hours a week, or 5 days a week) (relating to 29 C.F.R. § 778.202);
- Credit premiums paid to employees for working on Holidays or special days (such as on Saturdays or Sundays) toward any overtime compensation due (§§ 778.203(3), 778.205);
- Continue to exclude discretionary bonuses from the regular rate; the update also clarifies that nondiscretionary bonuses are included in the regular rate and that labels employers give bonuses do not determine whether they should be included in the regular rate or not (§ 778.211(c)-(d));
- Exclude Christmas and other special occasion bonuses from the regular rate if they can be considered gifts (§ 778.212(c));
- Exclude employer-provided coffee and snacks in the workplace from employees’ regular rates (§ 778.212(c));
- Exclude from the regular rate employer contributions to employee benefit plans that provide for the payment of benefits to employees due to death, disability, old age, retirement, illness, medical expenses, hospitalization, accident, unemployment, legal services, or other events that could cause a significant financial hardship or expense in the future (§ 778.215(a)(2));
- Exclude reimbursement for expenses incurred on the employer’s behalf from the employee’s regular rate (§ 778.217(a));
- Exclude from the regular rate amounts paid for forgone holiday or vacation leave (§ 778.219(a));
- Exclude show-up or reporting pay from the employee’s regular rate when the pay is not for hours actually worked (§ 778.220(b));
- Exclude call-back pay and similar payments from an employee’s regular rate when the pay is not for hours actually worked (§ 778.221(a)); and
- Exclude from the regular rate payments for such things as:
- Renting a car or truck;
- Loans or advances made by the employer to the employee;
- Conveniences to the employee, like:
- Parking spaces and parking benefits;
- Restrooms and lockers;
- On-the-job medical care;
- Treatment provided on-site from specialists such as chiropractors, massage therapists, physical therapists, personal trainers, counselors, or Employee Assistance Programs; or
- Gym access, gym memberships, fitness classes, and recreational facilities;
- Employee wellness programs, such as health risk assessments, biometric screenings, vaccination clinics (including annual flu vaccinations), nutrition classes, weight loss programs, smoking cessation programs, stress reduction programs, exercise programs, coaching to help employees meet health goals, financial wellness programs or financial counseling, and mental health wellness programs;
- Discounts on employer-provided retail goods and services;
- Tuition benefits (whether paid to an employee, an education provider, or a student loan program); and
- Adoption assistance (including financial assistance, legal services, or information and referral services).
Overall, the guidelines help employers identify what should and should not be included in their calculations of employees’ regular rates. Additionally, although these guidelines are not binding, they are persuasive authority that courts will look to in considering whether employers have complied with the Fair Labor Standards Act’s overtime compensation requirements. Employers should review the guidelines to ensure they are currently in compliance with the Fair Labor Standards Act. Employers may also want to look at the guidelines to see if there are any perks or benefits that they would like to implement now that the updated guidelines are clear that those items do not have to be included in employees’ regular rates.
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