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Final Rule to Update the Regulations Governing the Regular Rate Under The FLSA

On December 12, 2019, the U.S. Department of Labor (DOL), announced a new final rule that clarifies how to calculate an employee’s regular wage rate under the Fair Labor Standards Act (FLSA). The final rule becomes effective on January 15, 2020.

Calculating the regular rate is an essential first step when determining an employee’s overtime compensation. Under the FLSA, an employee’s regular rate includes all forms of compensation paid to that employee in a workweek. 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.

The DOL’s stated objective with this rule is to provide more certainty for employers that offer additional perks to their employees but aren’t sure of whether these benefits should be counted as income under the FLSA, such as discretionary bonuses, reimbursement for expenses, pay for time not worked, wellness programs and tuition programs. The final rule has another common theme: payments that do not depend on hours worked, services rendered, job performance, or other criteria that depend on the quality or quantity of the employee’s work do not need to be included in the regular rate.

More information about the final rule, including FAQs and a Fact Sheet, is available here.

Next Steps

Employers should consider taking the opportunity created by the final rule to conduct an audit of their overtime calculations. Employers should become familiar with this final rule and adjust their payroll practices to account for this new guidance on what should be considered compensation by January 15, 2020.

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