FLSA Update: DOL Clarifies Perks and Benefits for ‘Regular Rate of Pay’

By Kris Janisch
Published Dec. 17, 2019

DOL FLSA Regular Rate of Pay Exclusions Final Rule

The first “significant” update to rate requirements in more than half a century will make it easier for companies to offer perks and benefits to employees, according to the U.S. Department of Labor.

The U.S. Department of Labor (DOL) on Dec. 12 announced clarifications to how employers should define perks and benefits under the Fair Labor Standards Act (FLSA).

The first “significant” update to rate requirements in more than half a century will make it easier for companies to offer perks and benefits to employees, according to the DOL.

The measure helps employers determine which perks and benefits can be excluded for employees who are eligible for overtime, when companies must pay such workers 1.5 times their regular rate of pay. But what had to be included in that regular rate of pay left room for confusion.

The regular rate is determined by dividing the salary by the number of hours actually worked in the particular workweek. In workweeks when employees work in excess of 40 hours, they must be paid the overtime rate based on their regular rate for that workweek.

Regular Rate of Pay Exclusions

The DOL sought to clarify regulations regarding what may be excluded when calculating an employee’s regular rate of pay, including:

  • Certain sign-on and longevity bonuses
  • Discretionary bonuses
  • Cost of providing certain parking benefits
  • Costs of providing wellness programs and related onsite exercise opportunities
  • Costs of certain tuition benefits
  • Payments for unused paid leave (plus paid sick leave or paid time off)
  • Reimbursements for phone plans, travel, membership dues and more
  • Contributions to benefit plans for unemployment, accidents, legal services and more

There are other items that may be excluded, as well. Be sure to check the DOL’s full list. The Final Rule will publish in the Federal Register Dec. 16, with an effective date of Jan. 15, 2020.


Meanwhile, the DOL also provided clarification on bonuses. How a bonus is labeled does not determine if it is discretionary.

The DOL eliminated a restriction on “call-back” pay. Those and similar payments must be “infrequent and sporadic” for an employer to exclude the funds from an employee’s regular rates. Such payments can’t be prearranged.

Also, the “basic rate” has been updated, meaning employers using an authorized basic rate “may exclude from the overtime computation any additional payment that would not increase total overtime compensation by more than 40 percent of the higher of the applicable local, state, or federal minimum wage a week on average for the overtime workweeks in which the employer makes the payment,” according to the DOL release.

Final Rule for Overtime Pay

Meanwhile, the DOL in September updated its Final Rule update for overtime pay, raising the threshold for exempt workers to $35,568 per year.

Employees must be paid a salary of at least the minimum salary threshold amount and meet certain duties tests to be exempt from overtime under the FLSA. If either the salary threshold or the duties test is not met, the employee must be paid overtime at 1 ½ times their regular hourly rate for any hours worked in excess of 40 hours in a workweek.

Under the change, which goes into effect Jan. 1, 2020, more than a million more citizens will be eligible for overtime.

Lean more on our blog: FLSA Update: Department of Labor Issues Final Rule on Overtime Pay

This Labor Law News Blog is intended for market awareness only, it is not to be used for legal advice or counsel.

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