I. INTRODUCTION The U.S. Department of Labor (DOL) is clarifying and updating the regulations governing the regular rate requirements under the Fair Labor Standards Act (FLSA). The FLSA generally requires overtime pay of at least one and one-half times the regular rate for hours worked in excess of 40 hours per workweek. Regular rate requirements define what forms of payment employers include and exclude in the “time and one-half” calculation when determining workers’ overtime rates. In its Final Rule, the DOL has updated a number of regulations to provide clarity that allows employers to provide more benefits to their employees without unknown overtime consequences or litigation. II. KEY PROVISIONS OF THE FINAL RULE The Final Rule clarifies whether certain kinds of benefits or “perks” and other miscellaneous payments must be included in the regular rate used to determine an employee’s overtime pay. In relevant part, the DOL clarifies the current regulations to confirm that employers may exclude the following from an employee’s regular rate of pay:
The DOL also provides guidance and fact-based examples to illustrate the types of bonuses that are discretionary and may be excluded from an employee’s regular rate of pay under section 7(e)(3) of the FLSA, and includes clarification that the label given a bonus does not determine whether it is discretionary. Finally, the DOL makes two substantive changes to the existing regulations. First, the DOL eliminates 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. Second, the DOL updates its “basic rate” regulations which is authorized as an alternative to the regular rate under specific circumstances. Under the current regulations, employers using an authorized basic rate may exclude from the overtime computation any additional payment that would not increase total overtime compensation by more than $0.50 a week on average for overtime workweeks in the period for which the employer makes the payment. The DOL updates this regulation to change the $0.50 limit to 40 percent of the higher of the applicable local, state, or federal minimum wage.