DOL proposes to revamp regular rate calculation

Coming fast on the heels of proposed regulations that seek to raise the salary employees must earn to remain exempt under the Fair Labor Standards Act, the Department of Labor has proposed regulations that would tweak the payments that can and can’t be excluded from employees’ regular rate calculations when you’re figuring their overtime rates. These regs won’t become effective until final regs are issued. (84 F.R. 11888, 3-29-19)

New excludable payments. Although the proposed regs primarily restate current law on the items that can be excluded from nonexempts’ regular rates when you’re figuring their overtime rates, the DOL has also updated and modernized some of those items.

Under the proposed regs, the following new payments could be excluded from nonexempts’ regular rate calculations:

  • The cost of wellness programs, on-site specialist treatment, gym access and fitness classes.
  • Payments for unused paid leave, including paid sick leave.
  • Reimbursements for expenses that aren’t incurred “solely” for the employer’s benefit.
  • Reimbursements for travel expenses up to the federal per diem rates.
  • Reimbursements for employees’ educational expenses.
  • Employee discounts on retail goods and services.
  • Payments for time that doesn’t otherwise qualify as working time (e.g., bona fide meal periods).

Payments clarified. The DOL didn’t change the definition of a discretionary bonus—a bonus over which management retains control until quite close to the payout date—but it did provide two new examples: bonuses to reward employees for coping with challenging or stressful situations (e.g., spot bonuses) and bonuses for employee-of-the-month.

The regs also respond to certain state and local scheduling laws. The regs clarify that reporting pay should be treated the same as show-up pay—a payment for an employer’s failure to provide employees with expected work—so it should be excluded from the regular rate calculation. Similarly, call-back pay should be treated the same as reporting pay, unless the payments are so regular they are essentially prearranged. If that’s the case, call-back pay would need to be included in the regular rate calculation.

Payroll Handbook D

Under the regs, the same principle—exclusion from the regular rate, unless the payments are so regular they are essentially prearranged—would apply to the following payments:

  • “Clopening” or “right to rest” pay laws for employees who work the end of one day’s shift and the start of the next day’s shift with fewer than 10 or 11 hours between shifts or employees who work during a rest period.
  • “Predictability pay” for employees who don’t receive the requisite notice of a schedule change.
  • On-call pay for employees with a scheduled on-call shift but who aren’t called in to work.

MONEY TALKS: Some of the DOL’s proposed revisions to the regular rate, if finalized, will have tax consequences, so you may end up giving with one hand, but taking back with the other. The chart below compares the full list of the DOL’s payments to the IRS’ treatment of the same items.


Click the image to download.

Regular rate/taxation comparison chart