December 12, 2019

By Anne Baggott

The U.S. Department of Labor announced a final rule today clarifying that certain benefits and other categories of pay do not need to be included in the regular rate of pay. Employers must properly calculate the regular rate of pay to compensate employees correctly for overtime. The rule is effective January 15, 2020.

The final rule confirms employers may exclude the following from an employee’s regular rate of pay:

  • Parking benefits, wellness programs, on-site specialist treatment, gym access and fitness classes, employee discounts on retail goods and services, certain tuition benefits (whether paid to an employee, an education provider, or a student-loan program), 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.
  • Gifts to employees, including the cost of office coffee and snacks.
  • Discretionary bonuses, by clarifying that the label given a bonus does not determine whether it is discretionary and providing additional examples.
  • Contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.

The rule added examples of bonuses that are most likely considered discretionary and need not be included in the regular rate of pay. Examples include bonuses to employees “who made unique or extraordinary efforts which are not awarded according to preestablished criteria, severance bonuses, referral bonuses for employees not primarily engaged in recruiting activities, bonuses for overcoming challenging or stressful situations, employee-of-the-month bonuses, and other similar compensation.”

The end of the year is prime time for reviewing pay policies. DOL’s final rule will help employers comply with the Fair Labor Standards Act while also offering employees generous and competitive benefits without risk of an FLSA violation. For more information, contact Anne Baggott at or 816-931-2700.