Overtime Rates: U.S. Department of Labor (DOL) Final Rule

What Pay Rates Include and Can Exclude

Overtime rates received clarification when the DOL announced a Final Rule on December 12, 2019 that goes into effect January 15, 2020.

This is the first DOL substantial update in over 50 years that affects regular rate requirements. It tells employers what payment employers should include and should exclude in the time and a half, overtime pay calculation. It also greatly enables employers to offer perks and benefits to employees.

How Do Perks and Benefits Figure into Regular Pay and Overtime Rates?

Nailing down the pay rate to use when paying time and a half has been unclear for many years. The DOL has now established a set standard.

Employers can exclude the following from regular pay rates:

  • Remuneration for certain parking benefits, wellness programs, gym access, fitness classes, onsite specialist treatment, employee discounts on retail good and services, certain tuition benefits and adoption assistance
  • Payments for unused paid leave (includes sick leave or paid time off)
  • Payments for certain penalties required under state and local scheduling laws
  • Paid expenses, such as cell phone plans, credentialing exam fees, organization membership fees, travel fees (even if not solely for employer’s benefit and also that do not exceed maximum travel reimbursement under the Federal Travel Regulation System and that are reasonable payments based on IRS substantiation amounts)
  • Certain sign-on bonuses and longevity bonuses
  • Discretionary bonuses (whether labeled discretionary or not)
  • Contributions to benefit plans for accident, unemployment, legal services or other events that are capable of causing future financial hardship or expense.

The Final Rule provides factual examples that clarify whether a bonus is discretionary or not. It also eliminates “infrequent and sporadic” as a qualifying factor for “call-back” pay and similar payments to be excluded from the employee’s regular pay rate. This is allowable as long as these payments are not pre-arranged.

Our attorneys at Stephen Hans & Associates have extensive experience representing employers in work-related employment and labor law issues.

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