For the first time in 50 years, the DOL has put in place a new definition of “regular rate of pay,” (RROP) which determines how an employee's overtime pay is calculated.
Last week, the Department of Labor published a new rule regarding overtime pay that it says will encourage employers to offer employees more perks.
For the first time in 50 years, the DOL has put in place a new definition of “regular rate of pay,” (RROP) which determines how an employee's overtime pay is calculated. Workers who are eligible for overtime are required to be paid 1.5 times the RROP when they work more than 40 hours per week.
Where it gets complicated is that the RROP does not simply refer to a worker's base hourly wage. It can also include bonuses, shift differential wages or other incentive payments. An employee's overtime pay is therefore supposed to take all of those additional forms of compensation into account.
The new DOL rule specifies that the following are excluded from RROP calculation:
- The cost of providing wellness programs, onsite specialist treatment, gym access and fitness classes, and employee discounts on retail goods and services;
- Payments for unused paid leave, including paid sick leave;
- Reimbursed expenses, even if not incurred “solely” for the employer's benefit;
- Reimbursed travel expenses that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System and that satisfy other regulatory requirements;
- Discretionary bonuses, by providing additional examples and clarifying that the label given a bonus does not determine whether it is discretionary;
- Benefit plans, including accident, unemployment, and legal services; and
- Tuition programs, such as reimbursement programs or repayment of educational debt.
The Trump administration argues that employers have been reluctant to offer some of these benefits for fear that it will complicate or drive up the cost of paying overtime wages. The new policy will encourage more employers to provide perks.
“The regular rate proposal would provide clarity for employers to allow them to add more benefits to their employees without unknown overtime consequences or litigation,” said Keith Sonderling, Acting Administrator for the Department's Wage and Hour Division. “This proposed rule offers a positive path forward to employers and employees alike.”
In early March, the administration proposed another significant overtime rule, updating the salary threshold at which employees can be exempt from mandatory overtime pay. Under the proposal, the threshold increased from $23,660 to $35,308. While that is a significant increase that will increase make 1 million additional employees eligible for overtime, it is significantly less ambitious than the $47,000 threshold proposed by the Obama administration in 2016.
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