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Thompson Hine LLP, a full-service business law firm with approximately 400 lawyers in 8 offices, was ranked number 1 in the category “Most innovative North American law firms: New working models” by The Financial Times and was 1 of 7 firms shortlisted for The American Lawyer’s inaugural Legal Services Innovation Award. The firm has been recognized by the National Law Journal as a Legal Technology Trailblazer and featured by Bloomberg for its innovative service delivery models, which drive accuracy and predictability. The firm’s commitment to innovation is embodied in Thompson Hine SmartPaTHTM – a smarter way to work – predictable, efficient and aligned with client goals. For more information, please visit ThompsonHine.com and ThompsonHine.com/SmartPaTH.

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For the first time in over 50 years, the U.S. Department of Labor (DOL) has announced a proposed rule that would substantially update the “regular rate” of pay and the “basic rate” of pay to clarify the rules and reflect the 21st-century workforce. The regular rate determines what forms of payment employers must include when calculating employees’ overtime “time and one-half” rate of pay. The basic rate is used in limited circumstances to calculate overtime pay.

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The DOL’s proposed rule seeks to clarify which perks provided by an employer should be excluded from an employee’s regular rate of pay. The majority of the updates clarify the exclusions that fall under three categories:

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Under the proposed rule, an employer will be permitted to exclude from an employee’s regular rate of pay:

In addition to updating the regular rate of pay, the DOL proposes eliminating the standard that call-back payments must be “infrequent and sporadic” to be excludable from an employee’s regular rate. However, the DOL is continuing to require that payments under the call-back provision are excludable when they are not so regular that they are essentially prearranged.

The DOL also proposes updating the basic rate regulations to similarly match the current workforce. In certain circumstances, employers are permitted to use a basic rate as an alternative to the regular rate to calculate overtime compensation. The basic rate is defined as a specified rate or method of calculation that is substantially equivalent to an employee’s straight-time average hourly earnings and has been agreed upon by the employee before he or she performs the work.

Under the current basic rate regulations, an employer may exclude additional payments from the overtime computation when the exclusions do not affect the employee’s overtime compensation by more than 50 cents per week on average for the overtime work weeks in the period that the employer makes the payment.

As an example, the DOL provided a scenario in which a non-exempt hourly employee is paid a cost-of-living bonus of $260 each calendar quarter, or $20 per week. The employee works overtime in only two weeks during the 13-week period, and in each of the overtime weeks he works 50 hours. He is therefore entitled to $2 as overtime compensation on the bonus for each week in which he worked overtime (i.e., $20 bonus divided by 50 hours equals 40 cents an hour; 10 overtime hours times one-half times 40 cents an hour equals $2 per week). Since the overtime on the bonus is more than 50 cents on average for the two overtime weeks, this cost-of-living bonus would not be excluded from the overtime computation.

Under the new proposal, the DOL would change the basic rate exclusion limit from 50 cents to 40 percent of the $7.25 federal minimum wage, or $2.90. In the example provided above, under the proposed rule the cost-of-living bonus would be an excludable payment because it would fall below the proposed limit of $2.90.

The DOL believes the proposed rule will lead to potential cost savings for employers, whether they use the regular rate or the basic rate. Employers should consider consulting with employment counsel to assess their pay practices and overtime calculations and determine the cost-saving areas of exclusion that may apply should the proposed rule become effective. The DOL is accepting written comments on the proposed rule until May 28, 2019 as part of its rulemaking process.

Bryan A. Stillwagon 404.407.3668 <a href="mailto:Bryan.Stillwagon@ThompsonHine.com">Bryan.Stillwagon@ThompsonHine.com</a>

Candice S. Thomas 513.352.6508 <a href="mailto:Candice.Thomas@ThompsonHine.com">Candice.Thomas@ThompsonHine.com</a>

or any member of our <a href="http://www.thompsonhine.com/services/labor-amp-employment">Labor &amp; Employment</a> group.

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.

This document may be considered attorney advertising in some jurisdictions.

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DOL Proposes Rule to Redefine Employees’ Regular Rate of Pay

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