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08 January 2020
The US Department of Labour (DOL) has announced a final rule (the new rule) that updates several regulations regarding what forms of payment employers can exclude in the time-and-a-half calculation for overtime pay. The new rule clarifies that employers can exclude a range of employee perks and state-mandated payments in calculating overtime under federal law.
The Fair Labour Standards Act (FLSA) requires employers to pay non-exempt employees at least one-and-a-half times their regular rate for hours worked exceeding 40 per work week. The FLSA defines the 'regular rate' as "all remuneration for employment paid to, or on behalf of, the employee". Decades ago, the DOL issued several regulations addressing how employers must calculate the regular rate under Part 778 of the Code of Federal Regulations Title 29. However, those regulations have left employers uncertain about how to treat payments that are common in modern employee compensation packages and required under state scheduling and paid leave laws.
In a much-welcomed development among employers, the new rule clarifies that employers may exclude the following from an employee's regular rate payments:
In addition, the new rule provides additional examples of discretionary bonuses that may be excluded from the regular rate. Although the FLSA regulations have long permitted employers to exclude discretionary bonuses, the DOL and plaintiffs' lawyers often challenge bonus payments as not qualifying as truly discretionary. While the new rule reiterates that "the label or name assigned to bonuses" is not a controlling factor, it gives examples of bonuses that may be discretionary, such as:
The new rule provides employers with more certainty in calculating overtime payments and better defences in the face of challenges to their overtime payment policies. Accordingly, employers should review their pay practices with the new rule in mind. However, employers should remember that the courts will not necessarily use the new federal rule to interpret state overtime laws; indeed, California has departed from federal law on overtime issues in the past.
For further information on this topic please contact Brian Baggott at Dentons US LLP's Kansas City office by telephone (+1 816 460 2400) or email (firstname.lastname@example.org). Alternatively, contact Erin Bass at Dentons US LLP's Phoenix office by telephone (+1 602 508 3900) or email (email@example.com). The Dentons US LLP website can be accessed at www.dentons.com.
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