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Department of Labor proposes changes for calculating overtime

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On March 28, for the first time in 50 years, the Department of Labor (DOL) proposed changing the definition of the "regular rate" of pay—the building block for calculating overtime. If the planned exclusions from the regular rate are adopted, employers may pay less in overtime than plaintiffs' attorneys would like.

But companies may be likelier to provide more benefits such as tuition reimbursement, said Tammy McCutchen, an attorney with Littler in Washington, D.C.

"With clarity that certain perks and benefits are excludable from the regular rate, employers can be more generous in expanding their offerings of perks and benefits," noted Liz Washko, an attorney with Ogletree Deakins in Nashville, Tenn. "This is not just due to limiting the financial costs of such offerings, but also reducing the potential administrative burden of tracking and properly calculating the overtime rate while taking these kinds of compensation into account."

When calculating overtime under the Fair Labor Standards Act (FLSA), employers must pay nonexempt employees an overtime rate of 1 1/2 times their regular rate of pay for all hours worked beyond 40 a week.

This is not 1 1/2 times their hourly rate, McCutchen noted. The regular rate includes hourly wages or salary, most bonuses, shift differentials, on-call pay and commissions. It excludes benefits, paid leave, Christmas bonuses, other gifts and discretionary bonuses, she explained.

"Unless a particular payment is specifically excluded by the statute, it must be included when calculating the regular rate," noted Brett Coburn, an attorney with Alston & Bird in Atlanta. "A quick shorthand for thinking about the regular rate is that it is derived by adding up all nonovertime payments made to an employee in a week and dividing it up by the number of hours actually worked in the week."

McCutchen said it was necessary to update the types of compensation on which employers must pay overtime because the DOL last issued a rule on the regular rate in 1968, and many new employer benefits have emerged since then. Plaintiffs' attorneys argue that the value of these benefits should be included in overtime calculations.

For more on this article provided by The Society for Human Resource Management, go to https://www.shrm.org/ResourcesAndTools/legal-and-compliance/employment-law/Pages/regular-rate-proposed-rule.aspx.

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