U.S. Department of Labor Issues New Guidance on Overtime

By SHLC on January 9, 2020 in Uncategorized

DOL Opinion Letters

On January 7, 2020, the United States Department of Labor (“DOL”) released two new opinion letters offering the agency’s interpretation of certain points of federal overtime law. These opinion letters come at a time when several aspects of the law—discussed further below—are seeing updates and revisions.

The first letter, labeled FLSA2020-1, explains how a nondiscretionary lump sum bonus payment should be factored into an employee’s overtime compensation when the bonus is earned over the course of several pay periods. Under federal law, nondiscretionary bonuses generally must be included in calculating the “regular rate of pay,” i.e., the base rate of pay which is multiplied by 1.5 to arrive at an employee’s overtime rate. Federal regulations provide that if a bonus is earned during a period that is longer than one weekly pay period, and if it is not possible to “allocate the bonus among the workweeks of the period in proportion to the amount of the bonus actually earned each week,” then an employer may “assume that the employee earned an equal amount of bonus each week of the period to which the bonus relates.” See 29 C.F.R section 778.209(b).

The opinion letter addresses a scenario where employees are promised a $3,000 lump sum bonus if they successfully complete the first ten weeks of an 18-week training program. Under the circumstances, the DOL opined that “it is appropriate for the employer to allocate the lump sum bonus of $3,000 equally to each week of the ten-week training period. . . . The employer must then calculate the additional overtime pay due in those workweeks of the ten-week training period that the employee worked more than 40 hours.”

To read the full opinion letter, click here.

The second opinion letter, labeled FLSA 2020-2, addresses whether certain payments to consultants working on projects of finite duration constitute payments on a salary or fee basis for purposes of the federal overtime exemptions for administrative and professional employees. Under federal law, employees classified as exempt under the administrative or professional exemption must be compensated “on a salary or fee basis.” Although this letter deals with a very specific set of facts that will not be broadly applicable, it offers a helpful and thorough overview of how federal law defines compensation “on a salary or fee basis.”

To read the full opinion letter, click here.

New Final Rule on Regular Rate of Pay Calculation

On December 16, 2019, the DOL issued a new Final Rule for the purpose of clarifying which employee perks and benefits must be included in calculating an employee’s regular rate of pay under federal law. Some of the clarifications are significant. Among other things, the Rule provides that the following may be excluded from the regular rate of pay calculation:

  • 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, and adoption assistance;
  • payments for unused paid leave, including paid sick leave or paid time off;
  • payments of certain penalties required under state and local scheduling laws;
  • 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;
  • the cost of office coffee and snacks to employees as gifts;
  • discretionary bonuses, by clarifying that the label given a bonus does not determine whether it is discretionary and providing additional examples and;
  • contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.

The Rule will take effect on January 15, 2020.

For the full text of the Final Rule, click here.

New Final Rule Regarding Federal Standard Salary Level for Executive, Administrative, and Professional Exemptions

Employers should also be reminded that the DOL’s Final Rule increasing the “standard salary level” for exempt employees took effect on January 1, 2020. Now, the minimum salary under federal law paid to employees who satisfy the duties test for the executive, administrative, or professional exemption has been increased from $455 to $684 per week (equivalent to $35, 568 annually). The Final Rule allows employers to use nondiscretionary bonuses and incentive payments (including commissions), which are paid at least annually, to satisfy up to 10% of standard salary level.

Some states, such as California, have minimum salary thresholds that are higher than the federal amount in order for an employee to also be exempt under the applicable state law. However, Nevada currently follows the above federal rule.

The federal salary threshold for the “highly compensated employees” exemption has also increased, from $100,000 to $107,432 per year.

For the full text of the Final Rule, click here.

Stay Updated

Sutton Hague Law Corporation provides regular live webinars and seminars on employment law topics including wage and hour law. For information on our upcoming events, visit the Events page of www.suttonhague.com.

Also, selected past webinars are available for download at www.calnevalaw.com including recently recorded webinars providing an update on new employment laws for 2020 for Nevada and California employers. To access and purchase the webinars and related materials for download, please visit the Webinars page at the calnevalaw.com website.

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SHLCView all posts by SHLC