On March 28, 2019, the U.S. Department of Labor (DOL) announced a proposed rule that would update and clarify regular rate requirements. Specifically, the proposed rule lists perks and benefits, such as unused paid leave and reimbursed expenses that employers can exclude when calculating an employee’s regular rate of pay. This article provides concise answers to employers’ frequently asked questions about the proposed rule.
Is the proposed rule a positive development for employers?
The proposed rule appears to be a positive development for both employers and employees. A primary benefit of the proposed rule is that it updates and clarifies existing law as to what types of compensation and benefits, including many new and innovative types of compensation and benefits, are excludable from the regular rate of pay for purposes of calculating overtime. This helps employers comply with the Fair Labor Standards Act (FLSA) and allows employers the freedom to be innovative with their compensation and benefit programs, which would also benefit employees.
Is the proposed rule likely to encourage employers to provide more generous perks to employees?
If the proposed rule is finalized, there will be more clarity regarding which perks and benefits are excludable from the regular rate. With this clarity, employers are likely to be more generous in expanding their offerings of perks and benefits. This is not just because the proposed rule would limit the financial costs of such offerings but also because it would reduce the potential administrative burden of tracking and properly calculating the overtime rate while taking these kinds of compensation into account.
Are there any perks or benefits that the DOL has included in its proposed rule as an excludable payment that the plaintiffs’ bar has argued should be included?
Yes. Recently, some cases have been filed as purported collective actions alleging that employers have violated the FLSA by failing to include the costs of certain perks, such as fitness club membership reimbursements and student loan repayment programs, in the regular rate when calculating overtime.
What is the main takeaway for HR departments and in-house counsel?
Keep in mind that the proposed rule is not final. The notice and comment period will close on May 28, 2019, and it is unclear what the timeline will be after that for finalizing any rule. So there is no need to take any immediate action. But human resources (HR) departments and in-house counsel may want to start evaluating their current compensation and benefit offerings to determine whether there may be opportunities to modify or expand those offerings should the proposed rule go into effect.
A version of this article first appeared on SHRM Online.