Non-exempt employees generally must be compensated at one and one-half times their “regular rate of pay” for any hours worked over forty (40) hours in a work week. Many employers confuse “regular rate of pay” for an employee’s hourly wage rate. Unfortunately, an employee’s regular rate of pay includes compensation in addition to their regular hourly wage, and failure to properly calculate the rate at which overtime compensation should be paid can lead to valid claims of unpaid wages. The problem has been that often the benefits employers give to employees were not specifically excluded or included in the regular rate of pay definition, which lead to much confusion and misapplication of the rules.
What has been updated?
To clarify this confusion, the DOL issued revised regulations as to what is and what is not included in a non-exempt employee’s regular rate of pay, which are effective 1/15/20. This is especially important in an environment where employers are competing for top talent and implementing new and creative ‘perks’ for their employees in an effort to attract and retain workers.
Some benefits the DOL has specifically excluded from an employee’s regular rate of pay include:
- Payments for unpaid leave (e.g., sick time);
- Reimbursed expenses for cellphone plans;
- Some travel expenses that meet the definition of a “reasonable payment”;
- Certain referral bonuses and acknowledgment bonuses (e.g., employee-of-the-month);
- Costs of providing certain employee benefits such as parking, wellness programs, certain tuition benefits, gym access, and adoption assistance.
What hasn’t changed?
The most important take away here is that non-discretionary bonuses remain included in a non-exempt employee’s regular rate of pay. A common non-discretionary bonus that many employers utilize improperly is the attendance bonus. If an employee is not late to work for X weeks in a row, they receive Y. This is but one example of a bonus that requires the recalculation of an employee’s regular rate of pay IF that employee works any overtime.
Why It Matters?
Claims made by employees for unpaid wages are costly to defend and costlier if they are true. By making these changes, the DOL provides some clarification to definitions it uses to determine whether or not an employer has properly compensated its non-exempt employees. This is helpful for employers searching for ways to provide perks to employees without the administrative burden of recalculating their overtime rate.
If you have any questions or concerns, please contact your Carlile Patchen & Murphy business attorney today.
**Source: U.S. Department of Labor