Regular rate of pay rule revamp kicks in Jan. 15

Make room, new overtime rules! The new regular rate of pay rules have arrived.

The Department of Labor (DOL) just finalized an update to the regular rate of pay calculation. This is the first time in 50 years.

Too bad your company has just days to get up to speed and in compliance!

The new regs go into effect Jan. 15.

And since they go hand-in-hand with overtime calculations, you’ll need to make sure your payroll team, as well as supervisors and non-exempt employees, understand them.

Because if they don’t, your company could end up overpaying.

So that you’re ready for Jan. 15, here’s a rundown of the new regs.

A large exclusion list from the regular rate of pay

Most importantly, the regs spell out what types of things your company doesn’t have to include when determining an employee’s regular rate of pay.

You’ll find almost every finance and accounting department touched by this new list. That includes Payroll, A/P and Benefits. Check out what the DOL says you can now exclude from an employee’s regular rate of pay:

  • the cost of providing certain parking benefits, wellness programs, on-site specialist treatment, gym access, and fitness classes, employee discounts on retail goods and services, adoption assistance and certain tuition benefits (whether they’re paid to an employee, an education provider or a student-loan program)
  • reimbursed expenses including cellphone plans, credentialing exam fees, organization membership dues, and travel, even if not incurred “solely” for the employer’s benefit. Clarification: Reimbursements that don’t exceed the maximum travel reimbursement under the Federal Travel Regulation System or the optional IRS substantiation amounts for travel expenses are “reasonable payments”
  • the cost of office coffee and snacks are given to employees as gifts
  • payments for unused paid leave, including paid sick leave or PTO
  • discretionary bonuses (the regs provide additional examples)
  • certain sign-on bonuses and certain longevity bonuses
  • contributions to benefit plans for an accident, unemployment, legal services or other events that could cause future financial hardship or expense, and
  • payments of certain penalties required under state and local scheduling laws.

This massive list is good news for an employer. Your company won’t have to include so many things in time-and-a-half calculations.

Just make sure Payroll familiarizes itself with it so you don’t accidentally end up factoring any of these in and overpaying.

2 other major updates

That wasn’t all included in the new regular rate of pay regs. The DOL made two additional clarifications that should make OT administration less confusing:

1. Clarity on “call-back” pay. Call-back pay and other payments
like it no longer have to be “infrequent and sporadic” to be excludable from an employee’s regular rate of pay. However, such payments must not be prearranged. (That part didn’t change with the new regs.)

2. “Basic rate” changes. The new regs address this alternative to the regular rate.

Note: If you’re using an authorized basic rate, your company can exclude from the OT computation any additional payment that wouldn’t increase total overtime compensation by more than 40% of the higher of the applicable local, state, or federal minimum wage a week on average for the overtime workweeks in which you make the payment.

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