On March 26, 2020, the U.S. Department of Labor issued three opinion letters clarifying the December 2019 Final Rule on the Regular Rate under the Fair Labor Standards Act. The Final Rule requires employers to pay all non-exempt employees at least one and one-half times the employee’s regular rate when the employee works more than a forty-hour work week. 29 U.S.C. § 207(a)(1). The regular rate includes “all remuneration for employment paid to, or on behalf, of the employee,” subject to eight statutory exceptions. 29 U.S.C. § 207(e).
With respect to the exception for “payments in the nature of gifts…which are not measured by or dependent on hours worked, production, or efficiency”:
- Longevity bonuses, which do not provide an employer the discretion to deny the full amount of the award, are not excluded. These bonuses are included in the regular rate.
- Recruitment incentives for individuals are generally excluded where: (1) the individuals voluntarily participate in recruitment; (2) recruitment activities/efforts do not involve significant amounts of time; and (3) the recruitment occurs, primarily, outside of work hours with friends, relatives, neighbors, or acquaintances.
- However, if the recruitment bonus is based on the referral remaining employed for a substantial amount of time, for example more than a single pay period, the bonus may qualify as a longevity bonus. If the bonus can be contractually enforced, it cannot be excluded and is included in the regular rate. If the bonus cannot be contractually enforced, it can be excluded and is not included in the regular rate.
With respect to group life insurance coverage that qualifies as taxable income under the Internal Revenue Code:
- There is no presumption that taxable income, under the Internal Revenue Code, must be included in the regular rate.
- A contribution is excluded from the regular rate if the insurance policy benefits are: (1) specified or definitely determinable on an actuarial basis; or (2) based on a definite formula for determining both the employer’s contributions and the benefits to the employees.
For further information or detail, the Department of Labor Opinion Letters can be accessed here, here and here.
For more information, please contact your Labor & Employment law counsel at Smith, Gambrell, & Russell, LLP.