U.S. Department of Labor Updates for January 2020

January 9, 2020

The U.S. Department of Labor (the “Department”) has issued two final rules impacting overtime compensation under the Fair Labor Standards Act (“FLSA”) that take effect this month. We describe the Rules’ key changes below.

On January 1, 2020, the Department’s final rule expanding overtime eligibility took effect. The final rule increases the salary threshold required to exempt executive, administrative, or professional employees from the FLSA’s minimum wage and overtime pay requirements; increases the minimum compensation for “highly compensated employees;” and allows employers to count a portion of certain bonuses and commissions towards meeting the salary threshold. 

Specifically, the final rule makes the following key changes:

  • Increased the salary threshold for exemption from $455 to $684 per week (equivalent to $35,568 per year);

  • Raised the minimum annualized salary for highly compensated employees from $100,000 to $107,432 per year;

  • Granted employers the ability to use non-discretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary threshold; and

  • Revised the special salary thresholds for workers in U.S. territories and updated the base rate for employees in the motion picture producing industry.

Note: If an employee does not earn enough in non-discretionary bonuses and incentive payments (including commissions) in a given 52-week period to retain their exempt status, the final rule allows employers to make a “catch-up” payment at the end of the 52-week period. If the employer chooses not to make the catch-up payment, the employee would be entitled to overtime pay for any overtime hours worked during the previous 52-week period. Employers may not, however, use non-discretionary bonuses and incentive payments (including commissions) to satisfy the salary threshold for highly compensated employees.

On January 15, 2020,the Department’s final rule on calculating an employee’s regular rate of pay takes effect. An employee’s regular rate of pay is calculated by dividing their total weekly earnings by the number of hours worked during the workweek. 

Under the new rule, employers need not include the following when determining an employee’s regular rate of pay:

  • The cost of providing certain parking benefits, wellness programs, onsite specialist treatment, gym access and fitness classes, employee discounts on retail goods and services, certain tuition benefits (whether paid to an employee, an education provider, or a student-loan program), and adoption assistance;

  • Payments for unused paid leave, including paid sick leave or paid time off;

  • Penalties payable to employees who report for a scheduled shift but are not provided with work;

  • Reimbursed expenses including cellphone plans, credentialing exam fees, organization membership dues, and travel, even if not incurred “solely” for the employer’s benefit; and clarifies that reimbursements that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System or the optional IRS substantiation amounts for travel expenses are per se “reasonable payments”;

  • Certain sign-on bonuses and certain longevity bonuses;

  • Discretionary bonuses;

  • The cost of office coffee and snacks to employees as gifts; and

  • Contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.

A bonus is discretionary if: 

  1. the decision to issue a bonus, and the amount of any bonus, are within the employer’s sole discretion;

  2. the decision to issue the bonus occurs at or near the end of the period to which the bonus corresponds; and 

  3. the bonus is not paid pursuant to any prior contract, agreement, or promise that causes the employee to expect these payments regularly. 

The final rule offers examples of discretionary bonuses that may be excluded from the regular rate, including: bonuses paid to employees who make unique or extraordinary efforts that are not awarded according to pre-established criteria; severance bonuses; bonuses for overcoming challenging or stressful situations; and employee-of-the-month bonuses (so long as these bonuses are still paid near the end of the period to which the bonus corresponds and are not paid pursuant to any prior agreement).

For further information, contact Kurker Paget LLC.