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FLSA Regular Rate

U.S. DOL Clarifies FLSA Regular Rate

For the first time in over 50 years, the U.S. Department of Labor updated its interpretation of “regular rate of pay” under the Fair Labor Standards Act (FLSA). The new DOL rule takes effective January 15, 2020. The changes address new, more complicated perks and benefits. These include wellness plans, fitness classes, nutrition classes, and smoking cessation classes. The new rule will make it less costly for employers to provide additional benefits to employees. This, in turn, may increase workplace morale and employee retention.

The FLSA Regular Rate

The Fair Labor Standards Act is the federal law that establishes minimum wage, overtime pay, recordkeeping, and child labor standards. The FLSA covers most employees in the private sector and federal, state, and local governments.

Under the FLSA, an employee is eligible for minimum wage and overtime unless they qualify for a statutory exemption.

The employer must pay “non-exempt” employees at least minimum wage and compensate them for overtime at a premium rate of 1.5 multiplied by the employee’s “regular rate of pay” for all hours worked over 40 in a “workweek.”

Under current regulations, the “regular rate of pay” includes all remuneration for employment paid to or on behalf of an employee for hours worked, except for specific categories that were excluded under the FLSA. This “regular rate” includes the hourly wages and salaries for non-exempt employees, most bonuses, shift differential pay, on-call pay, and commission payments. The regular rate of pay is generally calculated by adding the employee’s includible compensation each week and dividing it by the number of hours worked within the workweek.

For more details on performing the FLSA regular rate calculation, read Calculating the Overtime ‘Regular Rate’.

New Rule on Regular Rate of Pay

The new rule clarifies that the following perks may be excluded from the calculation of an employee’s regular rate of pay, effective January 15, 2020:

  • The cost of providing parking benefits, wellness programs, onsite specialist treatments, gym access, and fitness classes, employee discount on retail goods and services, certain tuition benefits and adoption assistance;
  • Payment for unused paid leave, including paid sick leave and paid time off;
  • Certain penalties incurred by employees under state and local scheduling leave laws;
  • Business expense reimbursement for items such as cellphone plans, credentialing exam fee, organization membership dues and travel expenses that don’t exceed the maximum travel reimbursement under the Federal Travel Regulation system or the optional IRS substantiation amounts for certain travel expenses;
  • Certain sign-on and longevity bonuses;
  • Complimentary office coffee and snacks;
  • Discretionary bonuses (the DOL noted that the label given to a bonus doesn’t determine whether the bonus is discretionary); and
  • Contributions to benefit plans for accidents, unemployment, legal services, and other events that could cause financial hardship or expense in the future.

The DOL has also expanded the circumstances where employers can exclude call-back pay from the regular rate. Such payments no longer must go into the regular rate unless they are scheduled and prearranged.

Regular Rate Pitfalls

Overtime Must Be Calculated Weekly

Under the FLSA, an employer is responsible for determining the official workweek. Employers have considerable leeway in doing so. However, the workweek must consist of a fixed reoccurring 168 hours that contains seven, 24-hour workdays.  The workweek and workday start and end times must remain consistent unless employees receive advance notice of the changes.

Non-exempt employees must be paid overtime for all hours worked over 40 in a workweek (or as otherwise described by applicable law). Employers may not average the number of work hours worked by an employee over a two-week period, even if the employer has their payroll set up biweekly, to avoid paying overtime. For example, if an employee works 45 hours in week 1 and 35 hours in week 2, the employer may not average the hours worked over the two weeks resulting in a payment of zero overtime hours. Instead, the employee would be due 5 hours of overtime for week 1 and no overtime hours for week 2. Many employers make this mistake that could result in an extensive and expensive audit or litigation.

Employees Can’t Waive Overtime Pay

Non-exempt employees cannot waive their right to receive statutory overtime pay. This is true even for collective bargaining agreements or other written employment contracts.

Private Companies Can’t Use “Comp Time” Instead of Overtime Pay

Companies cannot provide employees with compensatory time (comp time) in exchange for payment for overtime hours worked each week. There are some exceptions to this rule for government workers.

Salaried, Non-Exempt Employees Are Still Eligible for Overtime Pay

An employer could pay a non-exempt employee a weekly salary that will represent pay for all regular hours of work. But if the employee works overtime during the workweek, the employer must pay additional premium compensation above and beyond the weekly salary for each overtime hour worked.

Example: An employee earns a weekly salary of $700 each week and works 43 hours. This employee’s regular rate of pay for this week would be $700/43=$16.28. The extra premium pay owed for the overtime hours can be determined by dividing the regular rate of pay in half. The employee should receive the normal weekly salary of $700, plus (3 hours x premium pay of $8.14) = $724.42.

State Overtime Laws

This new rule relates specifically to the FLSA. Many states have separate minimum wage and overtime laws. Employers often must satisfy both state and federal laws in this area. The “regular rate” concept may differ in some states. Therefore, be sure to consider the laws of your state in addition to the FLSA.

What Employers Should Do Next

Employers should conduct an overall audit to review what they include in their regular rate calculations. Companies using a third-party payroll provider should ask for clarification as to how overtime is calculated each week.

The FLSA is a complex law with many nuances beyond those described here. An experienced employment attorney can evaluate your pay practices and consult with you on overtime compliance. They might be able to identify alternative work schedules or payroll practices that comply with the wage and hour laws.

 

The new FLSA regular rate regulations are available here.

Federal Overtime Rules

Federal Overtime Rules Won’t Change Much in New York

On September 24, 2019, the U.S. Department of Labor finalized long-awaited changes to the federal overtime rules. The rules increase the salary requirement for the most common overtime exemptions. The higher threshold applies throughout the United States, but it does not trump most state overtime requirements. New York already has higher salary requirements for most of its overtime exemptions. Thus, the federal changes won’t force most New York employers to raise wages.

“White Collar” Exemptions

The Fair Labor Standards Act (FLSA) is a federal law requiring employers to pay minimum wage and overtime. Most employees must receive overtime for working over 40 hours in a week. Some exceptions apply. The most prevalent ones are the “white collar” exemptions.

The “white collar” exemptions include the administrative, executive, professional, and outside sales exemptions. All but the outside sales exemption have minimum salary requirements.

To qualify for the administrative, executive, and professional exemptions, most employees must satisfy both duties and salary requirements. (There is no salary requirement for doctors, lawyers, and teachers under the FLSA professional exemption.)

2020 Federal Overtime Rules

Beginning January 1, 2020, the weekly salary requirement for the FLSA administrative, executive, and professional exemptions will increase from $455 to $684. The new threshold is slightly higher than the $679 level first proposed earlier this year. However, it is much lower than the $913 level that the DOL tried to implement under President Obama in 2016.

Nondiscretionary Bonuses and Incentive Payments

Although the salary requirement has always been measured on a weekly basis, there is now a slight exception. For the first time, the new federal overtime rules will allow employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the salary requirement. Employers can review compliance on an annual basis and make a year-end “catch-up” payment if necessary.

Employers can determine the relevant 52-week period (measured consecutively), but must do so in advance. Otherwise, the calendar year is the default. They must make any necessary catch-up payment within one pay period after the end of the chosen 52-week period.

The total 52-week “salary” requirement is $35,568. Of that, up to $3,556.80 could be satisfied by bonuses or other incentive compensation.

Employers may pro-rate the requirement for employees who do not work the entire 52-week period. If an employee leaves employment the employer would need to ensure compliance and make any catch-up payment within one pay period after the end of employment.

Highly Compensated Employees

The FLSA’s special “highly compensated employee” exemption currently requires that the employee receive at least $100,000 in total compensation in a year.

The new federal overtime rules increase that to $107,432 in total annual compensation. The employee must receive at least $684 in salary on a weekly basis.

Earlier this year, the U.S. DOL proposed increasing this threshold much higher to $147,414. By comparison, the 2016 rule would have required annual compensation of at least $134,004.

The “highly compensated employee” exemption applies where the employee meets the compensation threshold and also performs at least one of the duties of an exempt executive, administrative, or professional employee. Most employees who qualify for this exemption would also be eligible for the full executive, administrative, or professional exemption anyway. So there may be relatively few situations where employers really need to increase compensation to maintain this special exemption.

New York’s Overtime Exemptions

The minimum wage varies throughout New York State based on geographic location, among other factors.

Click here for complete charts on the various New York minimum wage rates and overtime exemption salary levels.

For most occupations, the current New York minimum hourly wage ranges from $11.10 for Upstate workers to $15.00 for some employees in New York City.

New York has overtime pay rules that are similar to those found in the FLSA. These include similar exemptions, such as the administrative, executive, and professional exemptions.

New York’s administrative and executive exemptions already require that employees receive a salary higher than $684 per year. However, unlike the FLSA, New York’s professional exemption does not have a salary requirement. That means that some exempt professionals might need a raise to stay exempt in 2020.

A Caveat for Public Employers in New York

Most New York employers are subject to both the federal FLSA and the similar New York State laws.

However, the New York minimum wage and overtime rules don’t apply to governmental entities in the State, with limited exceptions. But the FLSA does.

So, public employers in New York will need to review the federal overtime rules to evaluate the potential impact on their workforces. Most public employees in New York eligible for exemptions already make more than $684 per year. But some, including part-time exempt employees, do not. (The FLSA salary requirement does not decrease for part-time employees.) Preserving exemptions for part-time employees may or may not be important, depending on whether they ever work over 40 hours in a week, which would trigger FLSA overtime obligations.

Act Soon, If Necessary

If you have employees in states where the new federal salary requirement exceeds the applicable state exemption threshold, then you need to be prepared to make changes by January 1, 2020. You will either need to increase compensation or remove the exemption and pay overtime where earned.

In New York, the new federal overtime rules only affect some public employers and professional employees. Most private-sector employers, including non-profits, will just need to focus on maintaining exemptions under New York law.

 

The full notice of the new FLSA regulations is available here:

Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees

Spring 2019 Employment Law Update

Spring 2019 Employment Law Update (Webinar Recap)

On April 18, 2019, I presented a complimentary webinar called “Spring 2019 Employment Law Update.” For those who couldn’t attend the live webinar, I’m happy to make it available for you to watch at your convenience.

In the webinar, I discuss:

  • EEO-1 Filing Status
  • Proposed FLSA Regulations
  • NY GENDA & Voting Leave
  • Other New York State & Local Laws

This is a broad update for all employers with employees in New York State. It addresses some things that have already changed, some pending regulatory proposals, and other possible future legal developments. One or more of the issues discussed would likely affect every employer in New York State. Some organizations may have to deal with every issue I covered in this webinar.

Don’t have time to watch the whole webinar right now? Click here to download the slides from the webinar.

Why You Should Watch “Spring 2019 Employment Law Update”

There is something for every New York organization in this webinar. Whether you are a small business, large corporation, non-profit organization, or governmental entity, one or more of these developments will affect your employees. Be prepared for upcoming changes and review new laws that are already in place.

Here are just a few of the takeaways from this legal update webinar:

  • Employers with 100+ employees will probably have to report pay data on this year’s EEO-1 reports.
  • FLSA salary level for exemptions will likely go up later this year.
  • Many more New York employees are now eligible for paid leave from work to vote in public elections.
  • Paid sick leave and bans on inquiring about applicant salary history could be coming to your workplace.

These are just a few of the details we addressed in much more detail in this one-hour webinar. Watching the recording at your earliest convenience should pay dividends to your organization.

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