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Labor Department proposes tweaks to overtime calculation rules

Move aims to boost benefits without fear of litigation

The U.S. Department of Labor on Thursday proposed more changes to regulations governing overtime pay. But this move could make it easier for employers to offer better benefits to workers and could provide protection from lawsuits, officials contend.

The proposed rule, which is open for public comment through May 28, would clarify and update the “regular rate requirements” for the first time in more than 50 years. The regular rate requirements define what forms of payment employers must consider when calculating the “time and a half” pay rate for overtime for eligible workers.

Workplace benefits have changed considerably over the years, and states are increasingly requiring benefits like sick and family leave, as well as scheduling mandates that could have an impact on overtime. Labor officials say employers are increasingly confused about how to determine regular pay rates.

“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 Labor Department’s wage and hour division, in a statement. “This proposed rule offers a positive path forward to employers and employees alike.”

Currently, employers are discouraged from offering more perks to employees — like wellness programs, payments for unused paid sick leave or tuition reimbursement — because it was unclear whether such benefits should be included in calculations of a worker’s regular rate of pay, the Labor Department argued.

Employment attorney Liz Washko, a shareholder in Nashville law firm Ogletree Deakins, agreed, saying the lack of clarity on the regulation has given plaintiffs’ attorneys an opportunity to sue restaurant employers.

Though such lawsuits are a fairly recent trend, they might give some employers pause when considering whether to offer benefits to their workers, she said.

The proposed rule change could give employers more freedom and flexibility to be innovative and generous with worker benefits without fear of running afoul of the law — or having to calculate the impact on overtime pay rates, Washko said.

“So you could provide a wellness program or a discount program or some kind of benefit with the knowledge that, not only would you not have to take on the cost of incorporating that into the overtime rate and pay overtime on it, you also eliminate the administrative burden of figuring all that stuff out, and the risk that someone down the road is going to make a creative argument that you have not complied with the law,” Washko said.

Under the proposed rule, benefits that would be excluded from overtime pay calculations include:

  • the cost of wellness programs or fitness classes;
  • payments for unused paid leave, like sick leave;
  • reimbursed expenses, like travel expenses;
  • certain discretionary bonuses;
  • benefit plans like accident, unemployment or legal services; and
  • tuition reimbursement or repayment of education costs.

The proposed rule would also exclude things like meal periods, unless an agreement or established practice indicates both parties consider the time as hours worked.

Another change is the consideration of “call-back pay,” when a worker has left the premises but has been called back to work. To be excluded from regular pay, such incidents must be “infrequent and sporadic,” under the proposed rule.

Earlier this month, the Labor Department also proposed a new overtime threshold, raising the minimum salary for employees to qualify for exemptions to $679 per week, or $35,308 per year — which, if enacted, would make more than 1 million more American workers eligible for overtime.

Under current law, employees with a salary below $455 per week, or $23,660 annually, must be paid overtime if they work more than 40 hours per week.

Contact Lisa Jennings at [email protected]

Follow her on Twitter: @livetodineout

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