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DOL Proposes New Rules Regarding the Overtime "Regular Rate"

April 3, 2019

By J. Kent Pearson, Jr.

The federal Fair Labor Standards Act (FLSA) generally requires subject employers to pay non-exempt employees overtime at a rate not less than one and one-half times the employees’ “regular rate” of pay for hours worked in excess of 40 in a workweek.  As defined in the FLSA and U.S. Department of Labor regulations, the regular rate includes not only the non-exempt employees’ regular hourly wage, but a variety of other employer payments such as commissions, shift differentials, and non-discretionary bonuses.  Such regular rate inclusions have the impact of increasing the amount of overtime paid to employees.  Over time, employers necessarily have faced the challenge of applying an antiquated statute and regulations to new forms of employee compensation and benefits.  To compound the problem, employer mistakes in calculating the regular rate of pay can result in costly litigation to recover unpaid overtime, liquidated damages, and attorneys’ fees.

The U.S. Department of Labor announced on March 28, 2019 that for the first time in fifty years, it has issued a proposed regulation intended to update the existing rules and provide clarity for employers in determining whether employer payments and benefits must be included in the regular rate.  The proposed rule, found here, enumerates a variety of employer payments and benefits that are appropriately excluded from the regular rate.  Under the proposed rule, exclusions include the cost of employer wellness programs, payments for unused paid leave, employer-reimbursed expenses, certain benefit plans, and tuition programs.  The DOL proposed rule is open for comments through May 28, 2019, and the rule is subject to revision after the comment period is over.

We will monitor the progress of this rule, as well as the anticipated proposed DOL rule adjusting the salary threshold for white-collar employees, and keep employers up to date.  As a reminder, Oregon and Washington employers should be cognizant that in addition to the FLSA, state law may also apply, and employees are entitled to the application of whichever law is more beneficial.  If you have any questions regarding your regular rate practices, please feel free to contact us.
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