Employers use "regular rate" of pay to determine whether or not their employees are eligible for overtime wages. When an employee works over 40 hours a week and their regular rate is under the Department of Labor's (DOL) salary threshold, the employer is required to pay them time and a half.
However, an employee's regular rate of pay includes more than just their hourly wage. It also includes commissions, on-call pay and bonuses. When an employer adds up additional compensations (along with other perks and benefits) to a worker's rate of pay, it can make that employee exempt from overtime premiums.
On Jan. 15, 2020, the Fair Labor Standards Act (FLSA) will put into motion an updated rule, which clarifies how regular rate of pay is determined. It has been 50 years since this rule was last modified.
Why is the law changing?
The main reason for this update is to provide clarity for employers, so that they can give overtime wages to workers more confidently and exclude other employees without fear of litigation. Many employers are currently unaware of exactly which perks and benefits should be included when calculating a worker's regular rate of pay. In order to avoid the risk of being sued by their employees, employers have refrained from providing certain benefits.
For example, let's say a business owner wants to set their employees up with parking benefits. However, they're unsure of whether or not this type of additional compensation needs to be included in their workers' regular rates of pay. If they don't include it, they could get in trouble for not complying with the FLSA. If they do include it, an employee might become exempt from the overtime wages they're accustomed to earning, which could lead to a costly lawsuit for the employer.
Now that the DOL has clarified which benefits and perks should be included versus which shouldn't, employers will have an easier time providing additional compensation to their employees. Plus, workers won't have as much power in the courtroom if they decide to sue over lost overtime pay.
What are the exclusions?
The new list of excluded categories under the FLSA is more modern and transparent than the old one. It takes into consideration new benefits that have become popular among businesses in the last decade, including wellness programs, massage therapy and meal breaks.
It also makes better sense of outdated language from the old regulation. For example, the old list of exemptions included vacation and holiday pay. The DOL updated this phrasing with respect to the fact that employers typically lump all types of PTO into one category.
When the new law is put into effect, these are some of the categories that'll be excluded from calculating a worker's regular rate of pay:
- Discretionary bonuses
- Payments for traveling expenses
- Income derived from grants
Who will benefit?
The implementation of this new rule will be positive for both employers and employees. As mentioned earlier, employers will face less litigation from disagreements surrounding overtime, since this new rule clearly defines the categories that are included and excluded in regular rate of pay. Knowing that they're complying with FLSA regulations while providing overtime wages will give them peace of mind and help them manage their business more smoothly.
Nonexempt employees will enjoy this new rule as well because they'll have access to more benefits, without the risk of losing their anticipated overtime pay.
How to comply with this new rule
In order to make sure they're complying with the new FLSA regulations, business owners should reassess how they're calculating regular rates for their employees. They'll need to examine the new rule and compare it with their current system. What needs to be changed? Do they have employees that are currently exempt from overtime, but shouldn't be? It's important to pay attention to the benefits that can be excluded from regular rates and consider offering them to employees.
Interested in learning more about how this new law might impact your business? Connect with us at Triton today!