DOL Proposes New Rule Regarding the Regular Rate of Pay

The U.S. Department of Labor (DOL) has published a proposed rule to amend the Fair Labor Standards Act (FLSA) regulations regarding the regular rate of pay (RROP). The proposed rule is not a departure or significant change from the current law, but clarifies what employers may exclude from the RROP. Generally, the FLSA requires employers to pay non-exempt employees overtime pay of at least one and one-half times the RROP for hours worked in excess of 40 hours per workweek. Any amounts that an employer pays its employee in addition to the base wage, such as bonuses, shift differentials, and incentive payments, will increase the RROP and thus increase the amount of overtime pay. Specifically, the proposed rule will confirm that employers may exclude the following from the RROP: the cost of providing wellness programs; employee discounts on retail goods and services; payments for unused paid leave; reimbursed expenses, even if not incurred “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 ; discretionary bonuses; benefit plans; and tuition programs, such as reimbursement programs or repayment of educational debt. The proposed rule would also eliminate the restriction that "call-back" pay and other payments similar to call-back pay must be "infrequent and sporadic" to be excludable from an employee’s regular rate, while maintaining that such payments must not be so regular that they are essentially prearranged. Although the proposed rule is not a material change from the current rule, it serves as an occasion for employers to revisit how they are calculating the RROP, and thus overtime pay, to ensure that they are doing it correctly. Improper calculation of the RROP that causes an underpayment in overtime pay can lead to significant liability.