# Regular Rate Under the Fair Labor Standards Act

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2019-05687

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** March 29, 2019
- **Citation:** 84 FR 11888

## Text

DEPARTMENT OF LABOR
Wage and Hour Division
29 CFR Parts 548 and 778
RIN 1235-AA24
Regular Rate Under the Fair Labor Standards Act

AGENCY:

Wage and Hour Division, Department of Labor.

ACTION:

Notice of proposed rulemaking and request for comments.

SUMMARY:

The Fair Labor Standards Act (FLSA or Act) generally requires that covered, nonexempt employees receive overtime pay of at least one and one-half times their regular rate of pay for time worked in excess of 40 hours per workweek. The regular rate includes all remuneration for employment, subject to the exclusions outlined in section 7(e) of the FLSA. Part 778 of Title 29, Code of Federal Regulations (CFR), contains the Department of Labor's (Department) official interpretation of the overtime compensation requirements in section 7 of the FLSA, including requirements for calculating the regular rate. Part 548 of Title 29 implements section 7(g)(3) of the FLSA, which permits employers, under specific circumstances, to use a basic rate to compute overtime compensation rather than a regular rate. The Department has not updated many of these regulations, however, in more than half a century—even though compensation practices have evolved significantly. In this Notice of Proposed Rulemaking (NPRM), the Department proposes updates to a number of regulations both to provide clarity and better reflect the 21st-century workplace. These proposed changes would promote compliance with the FLSA; provide appropriate and updated guidance in an area of evolving law and practice; and encourage employers to provide additional and innovative benefits to workers without fear of costly litigation.

DATES:

Submit written comments on or before May 28, 2019.

ADDRESSES:

You may submit comments, identified by Regulatory Information Number (RIN) 1235-AA24, by either of the following methods:
Electronic Comments:
Submit comments through the Federal eRulemaking Portal at
http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail:
Address written submissions to Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, Washington, DC 20210.
Instructions:
Please submit only one copy of your comments by only one method. All submissions must include the agency name and RIN, identified above, for this rulemaking. Please be advised that comments received will become a matter of public record and will be posted without change to
http://www.regulations.gov,
including any personal information provided. All comments must be received by 11:59 p.m. on the date indicated for consideration in this rulemaking. Commenters should transmit comments early to ensure timely receipt prior to the close of the comment period, as the Department continues to experience delays in the receipt of mail. Submit only one copy of your comments by only one method.
Docket:
For access to the docket to read background documents or comments, go to the Federal eRulemaking Portal at
http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT:

Melissa Smith, Director of the Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, Washington, DC 20210; telephone: (202) 693-0406 (this is not a toll-free number). Copies of this NPRM may be obtained in alternative formats (Large Print, Braille, Audio Tape or Disc), upon request, by calling (202) 693-0675 (this is not a toll-free number). TTY/TDD callers may dial toll-free 1-877-889-5627 to obtain information or request materials in alternative formats. Questions of interpretation and/or enforcement of the agency's regulations may be directed to the nearest WHD district office. Locate the nearest office by calling WHD's toll-free help line at (866) 4US-WAGE ((866) 487-9243) between 8 a.m. and 5 p.m. in your local time zone, or log onto WHD's website for a nationwide listing of WHD district and area offices at
http://www.dol.gov/whd/america2.htm.

Electronic Access and Filing Comments:
This proposed rule and supporting documents are available through the
Federal Register
and the
http://www.regulations.gov
website. You may also access this document via WHD's website at
http://www.dol.gov/whd/.
To comment electronically on Federal rulemakings, go to the Federal eRulemaking Portal at
http://www.regulations.gov,
which will allow you to find, review, and submit comments on Federal documents that are open for comment and published in the
Federal Register
. You must identify all comments submitted by including “RIN 1235-AA24” in your submission. Commenters should transmit comments early to ensure timely receipt prior to the close of the comment period (11:59 p.m. on the date identified above in the
DATES
section); comments received after the comment period closes will not be considered. Submit only one copy of your comments by only one method. Please be advised that all comments received will be posted without change to
http://www.regulations.gov,
including any personal information provided.

SUPPLEMENTARY INFORMATION:

I. Executive Summary

The FLSA generally requires covered employers to pay nonexempt employees overtime pay of at least one and one-half times their regular rate for hours worked in excess of 40 per workweek. The FLSA defines the regular rate as “all remuneration for employment paid to, or on behalf of, the employee”—subject to eight exclusions established in section 7(e).
1

Parts 548 and 778 of CFR Title 29 contain the regulations addressing the overtime compensation requirements in section 7 of the FLSA, including requirements for calculating the regular rate of pay.

1

See
29 U.S.C. 207(e).

The Department promulgated the majority of part 778 more than 60 years ago, when typical compensation often consisted predominantly of traditional wages; paid time off for holidays and vacations; and contributions to basic medical, life insurance, and disability

benefits plans.
2

Since that time, the workplace and the law have changed.

2

See
Bureau of Labor Statistics, An Overview of Employee Benefits 20 (2005),
https://www.bls.gov/careeroutlook/2005/summer/art02.pdf.

First, employee compensation packages, including employer-provided benefits and “perks,” have evolved significantly. Many employers, for example, now offer various wellness benefits, such as fitness classes, nutrition classes, weight loss programs, smoking cessation programs, health risk assessments, vaccination clinics, stress reduction programs, and training or coaching to help employees meet their health goals.

Both law and practice concerning more traditional benefits, such as sick leave, have likewise evolved in the decades since the Department first promulgated part 778. For example, instead of providing separate paid time off for illness and vacation, many employers now combine these and other types of leave into paid time off plans. Moreover, in recent years, a number of state and local governments have passed laws requiring employers to provide paid sick leave. In 2011, for example, Connecticut became the first state to require private-sector employers to provide paid sick leave to their employees.
3

Today, 11 states, the District of Columbia,
4

and various cities and counties
5

require paid sick leave, and many other states are considering similar requirements.

3

See
Conn. Gen. Stat. P.A. 11-52.

4

See
Ariz. Title 23, Ch. 2, art. 8, §§ 23-363, 23-364, & art. 8.1; Cal. Labor Code §§ 245, 2810.5; Conn. Gen. Stat. P.A. 11-52; D.C. Code § 32-131.01
et seq.;
Md. Code Ann. HB 0001; Mass. Gen. Laws ch. 149, § 148(c), (d); Mich. Comp. Laws §§ 408.961-974 (effective Mar. 29, 2019); N.J. A1827; Or. Rev. Stat. §§ 653.256, 659A.885; R.I. Gen. Laws Title 28, Ch. 28-57; 21 Vt. Stat. §§ 384, 481-485, 345; 29 Vt. Stat. § 161; Wash. Rev. Code §§ 49.46.005, 49.46.020, 49.46.090, 49.46.100.

5

See, e.g.
,
Austin, Tex., City Code 4-19 (2018); Minneapolis, Minn., Admin. Code. 40.10 (2016); Phila., Pa., Admin. Code 9-4100 (2015); N.Y.C., N.Y., Admin. Code 20-911 (2013); Seattle, Wash., Mun. Code. 14.16 (2011).

Recently, several states and cities have also begun considering and implementing scheduling laws. In the last 5 years, for example, New York, San Francisco, Seattle, and other cities have enacted laws imposing penalties on employers that change employees' schedules without the requisite notice, and various state governments are considering and beginning to pass similar scheduling legislation.
6

Some of these laws expressly assert that the penalties are not part of the regular rate under state law,
7

but confusion abounds for employers trying to determine how these and other penalties may affect regular rate calculations under federal law.

6

See
N.Y.C., N.Y., Admin. Code 20-1201 (2017); Seattle, Wash., Mun. Code 14.22.050 (2017); SB 828, 73rd Leg. Assemb., 2017 Reg. Sess. (Or. 2017);
see also
Emeryville, Cal., Mun. Code 5-39.01 (2017); S.F., Cal., Police Code art. 33G (2015).

7

See, e.g.,
Employee Scheduling (Call-in Pay), N.Y. St. Reg. LAB. 47-17-00011-P, at § 142-2.3(a)(2) (proposed November 11, 2017) (“Minimum rate. Payments for other hours of call-in pay shall be calculated at the basic minimum hourly rate with no allowances. Such payments are not payments for time worked or work performed and need not be included in the regular rate for purposes of calculating overtime pay.”); Or. Rev. Stat. Ann. § 653.412(7)(d) (effective July 1, 2018) (“Regular rate of pay” does not include “[a]ny additional compensation an employer is required to pay an employee under ORS 653.442 [right to rest between work shifts] or 653.455 [compensation for work schedule changes].”).

The Department believes that its current regulations do not sufficiently reflect these and other such developments in the 21st-century workplace. In this NPRM, the Department proposes to update its regulations in part 778 to reflect these changes in the modern workplace and to provide clarifications that reflect the statutory language and WHD's enforcement practices. In so doing, the Department intends to promote compliance with the FLSA; provide appropriate and updated guidance to employers with evolving worker benefits, including employers that offer paid leave; give clarity concerning the proper treatment of scheduling-penalty payments under the FLSA; and encourage employers to provide additional and more creative benefits without fear of costly litigation.

The proposed rule would clarify when unused paid leave, bona fide meal periods, reimbursements, benefit plans, and certain ancillary benefits may be excluded from the regular rate. The proposed rule would also revise certain sections of the regulation to adhere more closely to the Act. Additionally, the Department proposes minor clarifications and updates to part 548 of Title 29, which implements section 7(g)(3) of the FLSA. Section 7(g)(3) permits employers, under specific circumstances, to use a basic rate to compute overtime compensation rather than a regular rate.
8

The Department invites comments from the public on all aspects of this NPRM. The Department estimates below the economic effects of this rule. The Department estimates qualitatively the potential benefits associated with reduced litigation at $281 million over 10 years, or $28.1 million per year. The Department also estimates that this proposed rule, if finalized, would result in one-time regulatory familiarization costs of $36.4 million, which results in a 10-year annualized cost of $4.1 million at a discount rate of 3 percent or $4 million at a discount rate of 7 percent.

8

See
29 U.S.C. 207(g)(3).

This proposed rule is an Executive Order (E.O.) 13771 deregulatory action. Additional details on the estimated reduced burdens and cost savings of this proposed rule can be found in the rule's economic analysis.

II. Background

Congress enacted the FLSA in 1938 to remedy “labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and the general well-being of workers[,]” which burdened commerce and constituted unfair methods of competition.
9

In relevant part, section 7(a) of the FLSA requires employers to pay their employees overtime at one and one-half times their “regular rate” of pay for time worked in excess of 40 hours per workweek.
10

The FLSA, however, did not define the term “regular rate” when enacted.

9
29 U.S.C. 202(a);
see
Fair Labor Standards Act of 1938, Public Law 75-718, ch. 676, 52 Stat. 1060 (codified as amended at 29 U.S.C. §§ 201-219).

10
29 U.S.C. 207(a). The statutory maximum in 1938 was 44 hours per workweek; in 1939, it was 42 hours per workweek; and in 1940, it was 40 hours per workweek.
See
Public Law 75-718, 52 Stat. at 1063.

Later that year, WHD issued an interpretive bulletin addressing the meaning of “regular rate,” which WHD later revised and updated in 1939 and 1940. The 1940 version of the bulletin stated, among other things, that an employer did not need to include extra compensation paid for overtime work in regular rate calculations.
11

It also specified that the regular rate must be “the rate at which the employee is actually employed and paid and not upon a fictitious rate which the employer adopts solely for bookkeeping purposes.”
12

11

See
Interpretive Bulletin No. 4 ¶ 13 (Nov. 1940).

12

Id.
at ¶ 18.

In 1948, the Supreme Court in
Bay Ridge Operating Co.
v.
Aaron,
334 U.S. 446, addressed whether specific types of compensation may be excluded from the regular rate, or even credited towards an employer's overtime payment obligations. The Court held that an overtime premium payment, which it defined as “extra pay for work because of previous work for a specified number of hours in the workweek or workday whether the hours are specified by contract or statute,” could be excluded from the computation of the regular rate.
13

Permitting “an overtime premium to enter into the computation of the regular rate would be to allow

overtime premium on overtime premium—a pyramiding that Congress could not have intended.”
14

The Court also held that “any overtime premium paid, even if for work during the first forty hours of the workweek, may be credited against any obligation to pay statutory excess compensation.”
15

By contrast, the Court noted, “[w]here an employee receives a higher wage or rate because of undesirable hours or disagreeable work, such wage represents a shift differential or higher wages because of the character of work done or the time at which he is required to labor rather than an overtime premium. Such payments enter into the determination of the regular rate of pay.”
16

13
334 U.S. at 450 n.3, 465-66.

14

Id.
at 464.

15

Id.
at 464-65.

16

Id.
at 468-69.

After the
Bay Ridge
decision, in 1948 the Department promulgated 29 CFR part 778, concerning the regular rate.
17

This regulation codified the principles from
Bay Ridge
that extra payments for hours worked in excess of a daily or weekly standard established by contract or statute may be excluded from the regular rate and credited toward overtime compensation due, and that extra payments for work on Saturdays, Sundays, holidays, or at night that are made without regard to the number of hours or days previously worked in the day or workweek must be included in the regular rate and may not be credited toward the overtime owed.
18

It noted, however, that when extra payments for work on Saturdays, Sundays, holidays, or nights are contingent on the employee having previously worked a specified standard number of hours or days, such payments are true overtime premium payments that may be excluded from the regular rate and credited toward overtime compensation due.
19

The Department also explained that payments “that are not made for hours worked, such as payments for idle holidays or for an occasional absence due to vacation or illness or other similar cause” may be excluded from the regular rate, but could not be credited against statutory overtime compensation due.
20

17

See
13 FR 4534 (Aug. 6, 1948).

18

See
29 CFR 778.2 (1948).

19

See id.

20

Id.

Congress responded to the
Bay Ridge
decision in 1949 by amending the FLSA to identify two categories of payments that could be excluded from the regular rate and, in addition, credited toward overtime compensation due.
21

The first category was extra compensation for work on Saturdays, Sundays, holidays, or the sixth or seventh day of the workweek paid at a premium rate of one and one-half times the rate paid for like work performed in nonovertime hours on other days. The second category was extra compensation paid pursuant to an applicable employment contract or collective bargaining agreement for work outside of the hours established therein as the normal workday (not exceeding eight hours) or workweek (not exceeding 40 hours) at a premium rate of one and one-half times the rate paid for like work performed during the workday or workweek.
22

21

See
Public Law 81-177, ch. 352, 63 Stat. 446 (July 20, 1949). These provisions are currently codified at 29 U.S.C. 207(e)(6)-(7).

22

See id.

On October 26, 1949, Congress again amended the FLSA.
23

The amendments added, among other things, a comprehensive definition of the term “regular rate.”
24

“Regular rate” was defined to include “all remuneration for employment paid to, or on behalf of, the employee[,]”
25

with the exception of an exhaustive list of seven specific categories of payments that could be excluded from the regular rate.
26

Those categories of excludable payments were: (1) Gifts and payments on special occasions; (2) payments made for occasional periods when no work is performed such as vacation or sick pay, reimbursements for work-related expenses, and other similar payments that are not compensation for hours of employment; (3) discretionary bonuses, payments to profit-sharing or thrift or savings plans that meet certain requirements, and certain talent fees; (4) contributions to a bona fide plan for retirement, or life, accident, or health insurance; (5) extra compensation provided by a premium rate for certain hours worked in excess of eight in a day, 40 hours in a workweek, or the employee's normal working hours; (6) extra compensation provided by a premium rate for work on Saturdays, Sundays, regular days of rest, or the sixth or seventh days of the workweek; and (7) extra compensation provided by a premium rate pursuant to an employment contract or collective bargaining agreement for work outside of the hours established therein as the normal workday (not exceeding eight hours) or workweek (not exceeding 40 hours).
27

The October 1949 amendments also added a provision specifying that the last three of these categories are creditable against overtime compensation due.
28

23

See
Fair Labor Standards Amendments of 1949, Public Law 81-393, ch. 736, 63 Stat. 910.

24

Id.
§ 7, 63 Stat. at 913. This provision is currently codified at 29 U.S.C. 207(e).

25

Id.

26

See id.,
63 Stat. at 913-14. These provisions are currently codified at 29 U.S.C. 207(e)(1)-(7).

27

See id.
The excludable categories of payments in sections 7(d)(6) and (7) in the October 1949 amendments were essentially the same as those that had been added in the July 1949 amendments as sections 7(e)(1) and (2); the October 1949 amendments eliminated them from section 7(e).

28

See id.,
Public Law 81-393, 63 Stat. at 915. This provision is currently codified at 29 U.S.C. 207(h) (payments described in sections 7(e)(5)-(7) are creditable).

In 1950, the Department updated part 778 to account for the 1949 amendments to the FLSA.
29

These regulations explained general principles regarding overtime compensation and the regular rate, including the principle that each workweek stands on its own for purposes of determining the regular rate and overtime due.
30

The regulations also provided methods for calculating the regular rate under different compensation systems, such as salary and piecework compensation.
31

They further elaborated on the seven categories of payments that are excludable from regular rate calculations, and provided several examples.
32

The regulations also addressed special problems and pay plans designed to circumvent the FLSA.
33

29

See
15 FR 623 (Feb. 4, 1950) (codified at 29 CFR 778.0-.27).

30

See
29 CFR 778.2 (1950).

31

See
29 CFR 778.3(b) (1950).

32

See
29 CFR 778.5-.8 (1950).

33

See
29 CFR 778.9.17, .21-.23 (1950).

In 1961 and 1966, Congress made a few minor, nonsubstantive language changes and redesignated certain sections.
34

In 1968, the Department updated part 778, principally to clarify the statutory references, update the amounts used to illustrate pay computations, and reorganize the provisions in part 778.
35

Over the next several decades, the Department periodically made minor changes and updates to part 778.
36

34
In 1961, Congress made nonsubstantive language changes to sections (d)(5) and (7).
See
Fair Labor Standards Amendments of 1961, Public Law 87-30, 6, 75 Stat. 65, 70. In 1966, Congress redesignated section 7(d) as section 7(e).
See
Fair Labor Standards Amendments of 1966, Public Law 89-601, Title II, § 204(d)(1), 80 Stat. 830, 836. Additionally, section 7(g), which provided that extra compensation paid pursuant to sections 7(d)(5), (6), and (7) could be credited against overtime compensation due under section 7(a), was moved to section 7(h).
See id.

35

See
33 FR 986 (Jan. 26, 1968) (29 CFR 778.0-.603).

36

See
36 FR 4699 (Mar. 11, 1971) (updating § 778.214 to clarify that advance approval by the Department is not required for plans providing benefits within the meaning of section 7(e)(4)); 36 FR 4981 (Mar. 16, 1971) (updating § 778.117 to clarify commission payments that must be included in the regular rate); 46 FR 7308 (Jan. 23, 1981) (updating part 778 to increase the dollar amounts used as examples in the regulations, to respond to

statutory amendments affecting other parts of the FLSA, and to modify § 778.320 to clarify that pay for nonworking time does not automatically convert such time into hours worked); 46 FR 33516 (June 30, 1981) (correcting errors in the January 1981 update in §§ 778.323, .327, .501, .601); 56 FR 61100 (Nov. 29, 1991) (updating § 778.603 to address statutory amendment adding section 7(q) regarding maximum-hour exemption for employees receiving remedial education).

In 2000, Congress added one additional category of payments that could be excluded from the regular rate, currently found in section 7(e)(8).
37

This amendment permitted an employer to exclude from the regular rate income derived from a stock option, stock appreciation right, or employee stock purchase plan, provided certain restrictions were met.
38

In the 2000 amendments, Congress also amended section 7(h) to state that, except for the types of extra compensation identified in sections 7(e)(5), (6), and (7), sums excluded from the regular rate are not creditable toward minimum wage or overtime compensation due.
39

In 2011, the Department updated part 778 to reflect the 2000 statutory amendments and to modify the wage rates used as examples to reflect the current minimum wage.
40

37

See
Worker Economic Opportunity Act, Public Law 106-202, 2(a)(3), 114 Stat. 308 (2000).

38

See id.

39

See id.

40

See
76 FR 18832 (Apr. 5, 2011) (updating §§ 778.110, .111, .113, .114, .200, .208).

Currently, the FLSA's definition of “regular rate” and the eight categories of excludable payments are contained in section 7(e) of the Act.
41

The Department's regulations concerning the regular rate requirements are contained in 29 CFR part 778. As noted above, the last comprehensive revision to part 778 was in 1968.
42

41

See
29 U.S.C. 207(e). Additionally, section 7(h) states that only payments excludable from the regular rate pursuant to sections 7(e)(5), (6), and (7) may be credited against the employer's overtime obligation and that all other excludable payments (
i.e.,
payments that qualify as excludable under sections 7(e)(1), (2), (3), (4), and (8)) are not creditable.
See
29 U.S.C. 207(h).

42

See
33 FR 986 (29 CFR 778.0-.603).

Under certain circumstances, the FLSA permits employers to use a “basic rate,” rather than the regular rate as defined in section 7(e), to calculate overtime compensation.
43

Congress added this provision, which is currently in section 7(g), in 1949 (at the same time that Congress added the definition of “regular rate” to the FLSA).
44

The requirements an employer must meet to use a basic rate are set forth in that same section 7(g).
45

43
29 U.S.C. 207(g).

44

See
Public Law 81-393, 63 Stat. at 914-15. In 1966, Congress redesignated section 7(f) as section 7(g), with section numbers (1)-(3) remaining the same; no substantive changes were made.
See
Public Law 89-601, 80 Stat. at 836. 1 29 U.S.C. 207(g)(1)-(3).

45

See id.

In 1955, the Department promulgated 29 CFR part 548 to establish the requirements for authorized basic rates under section 7(g)(3).
46

It amended various sections of the part 548 regulations several times over the next 12 years to reflect statutory amendments to other parts of the FLSA, including increases to the minimum wage.
47

The Department has not updated any of the regulations in part 548 since 1967, more than a half-century ago.

46

See
20 FR 5679 (Aug. 6, 1955). The regulations interpreting sections 7(g)(1)-(2) are at 29 CFR 778.415-.421.

47

See
21 FR 338 (Jan. 18, 1956); 26 FR 7731 (Aug. 18, 1961); 28 FR 11266 (Oct. 22, 1963); 31 FR 6769 (May 6, 1966); 32 FR 3293 (Feb. 25, 1967).

III. Proposed Regulatory Revisions

The Department proposes to update regulations in part 778 and part 548 to both clarify the Department's interpretations in light of modern compensation and benefits practices. The sections below discuss, in turn, each category of excludable compensation that the Department proposes to address.

A. Excludable Compensation Under Section 7(e)(2)

Many of the proposed updates would clarify the type of compensation that is excludable from the regular rate under FLSA section 7(e)(2). Section 7(e)(2) permits an employer to exclude from the regular rate three categories of payments: First, “payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause”; second, “reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer's interests and properly reimbursable by the employer”; and third, “other similar payments to an employee which are not made as compensation for his hours of employment.”
48

48
29 U.S.C. 207(e)(2).

Section 7(e)(2) contains three separate clauses, each of which addresses a distinct category of excludable compensation. For purposes of this NPRM, the Department will refer to these clauses as the “occasional periods when no work is performed” clause; the “reimbursable expenses” clause; and the “other similar payments” clause. The Department's regulations interpreting section 7(e)(2) are contained in §§ 778.216-.224.

1. Pay for Forgoing Holidays or Leave

The initial clause of section 7(e)(2) permits an employer to exclude “payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause” from the regular rate.
49

Section 778.218 addresses this statutory provision and provides that when payments for such time “are in amounts approximately equivalent to the employee's normal earnings,” they are not compensation for hours of employment and are therefore excludable from the regular rate.
50

49
29 U.S.C. 207(e)(2).

50
29 CFR 778.218(a).
See
FOH 32d03g (“Payment for absences charged against leave under a bona fide plan granting the employee a specified amount of annual, vacation, or sick leave with pay need not be included in the regular rate of pay, if the sum paid is the approximate equivalent of the employee's normal earnings for a similar period of working time. Payments for such absences may be excluded regardless of when or how the leave is taken.”).

Section 778.219 addresses a related issue, the exclusion of payments for working on a holiday or forgoing vacation leave, as distinct from the exclusion of payments for using leave.
51

It explains that if an employee who is entitled to “a certain sum as holiday or vacation pay, whether he works or not,” receives additional pay for each hour worked on a holiday or vacation day, the sum allocable as the holiday or vacation pay is excluded from the regular rate.
52

In other words, when an employee works instead of taking a holiday or using vacation leave, and receives pay for the holiday or vacation leave that he or she did not take in addition to receiving pay for the hours of work performed, the amount paid for the forgone holiday or vacation leave may be excluded from the regular rate. Section 778.219 addresses only pay for forgoing holidays and vacation leave; it does not address sums paid for forgoing the use of other forms of leave, such as leave for illness.

51

See
29 CFR 778.219.

52
29 CFR 778.219(a).

WHD has addressed payment for forgoing sick leave in its Field Operations Handbook (FOH). The FOH states that the same rules governing exclusion of payments for unused vacation leave also apply to payments for unused sick leave.
53

Accordingly, when “the sum paid for unused sick leave is the approximate equivalent of the employee's normal earnings for a similar period of working time,” such

payments are excludable from the regular rate.
54

53

See
FOH 32d03e.

54

Id.

To clarify and modernize the regulations, the Department proposes to update § 778.219 to address payments for forgoing both holidays and other forms of leave. The Department is aware that many employers no longer provide separate categories of leave based on an employee's reason for taking leave—such as sick leave and vacation leave. Instead, employers provide one category of leave, which is commonly called paid time off. The Department sees no reason to distinguish between the types of leave when determining whether payment for forgoing use of the leave is excludable from the regular rate. Rather, the central issues are whether the amount paid is approximately equivalent to the employee's normal earnings for a similar period of time, and whether the payment is in addition to the employee's normal compensation for hours worked.

Accordingly, the Department proposes to clarify that occasional payments for forgoing the use of leave are treated the same regardless of the type of leave. The Department therefore proposes to revise the title of § 778.219, clarify in § 778.219(a) that payments for all forms of unused leave are treated the same for purposes of determining whether they may be excluded from the regular rate, and add an example concerning payment for forgoing the use of paid time off. The proposed changes reflect the Department's longstanding practice of applying the same principles to payments of unused holiday, vacation, and sick leave.
55

The proposed changes would ensure the consistent application of the same principles across differing leave arrangements.
56

The Department also proposes to clarify that payments for forgoing the use of leave are excludable from the regular rate regardless of whether they are paid during the same pay period in which the previously scheduled leave is forgone or during a subsequent pay period as a lump sum.
57

55

See id.

56

See, e.g., Balestrieri
v.
Menlo Park Fire Protec. Dist.,
800 F.3d 1094, 1103 (9th Cir. 2015) (holding that annual leave comprised of both sick and vacation leave need not be included in the regular rate under section 7(e)(2)). Such payments need not be included in the regular rate under section 7(e)(2) for the same reason that payments for unused vacations or holidays need not be included; it makes no difference that payments for unused annual leave or paid time off may include unused sick leave.
See also
Opinion Letter FLSA2006-18NA, 2006 WL 4512960 (July 24, 2006) (holiday payments made to employees when they forgo holidays need not be included in the regular rate pursuant to section 7(e)(2)); Opinion Letter FLSA2004-2NA, 2004 WL 5303030 (Apr. 5, 2004) (cashed-out accrued vacation time need not be included in regular rate pursuant to section 7(e)(2)).

57
In some situations, employers may make payments to encourage attendance at work rather than compensating employees for forgoing the use of leave. Section 7(e)(3)(a) permits the exclusion of discretionary bonuses from the regular rate, but requires, among other things, that such bonus not be made “pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly[.]” 29 U.S.C. 207(e)(3). As an example, § 778.211(c) states that an attendance bonus promised to employees to induce them to remain with the firm or to work more steadily, rapidly, or efficiently is not excludable from the regular rate. The proposed clarification to § 778.219(a) would not affect § 778.211(c), which addresses the exclusion of discretionary bonuses from the regular rate pursuant to FLSA section 7(e)(3)(a).
See
29 U.S.C. 207(e)(3)(a); 29 CFR 778.211(c). The facts of each case determine whether a payment is, in fact, for unused leave and therefore excludable or whether the payment is made as an attendance bonus that is required to be included in the regular rate. For example, WHD has stated in guidance that where a collective bargaining agreement provided that “ ‘[a]ll employees will be eligible for a stipend for perfect attendance,’ ” the payment, although described as a “stipend for nonuse of sick leave,” in fact constituted an attendance bonus under § 778.211(c) and therefore was required to be included in the regular rate. Opinion Letter FLSA2009-19, 2009 WL 649021 (Jan. 16, 2009).

2. Compensation for Bona Fide Meal Periods

As noted above, § 778.218 addresses the clause of FLSA section 7(e)(2) concerning payments made for occasional periods when no work is performed and provides that when payments for such time “are in amounts approximately equivalent to the employee's normal earnings,” they are not compensation for hours of employment and may be excluded from the regular rate.
58

Section 778.218(b) states that this clause “deals with the type of absences which are infrequent or sporadic or unpredictable” and “has no relation to regular `absences' such as lunch periods nor to regularly scheduled days of rest.”
59

58
29 CFR 778.218;
see
29 U.S.C. 207(e)(2).

59
29 CFR 778.218(b).

Section 778.320 addresses “hours that would not be hours worked if not paid for,” and identifies “time spent in eating meals between working hours” as an example.
60

Section 778.320(b) further states that even when such time is compensated, the parties may agree that the time will not be counted as hours worked.

60

See
29 CFR 778.320.

The Department proposes to remove the reference to “lunch periods” in § 778.218(b) to eliminate any uncertainty about its relation to § 778.320 concerning the excludability of payments for bona fide meal periods from the regular rate. As one court noted, the existing regulations in §§ 778.218 and 778.320 “appear somewhat inconsistent” on the excludability from the regular rate of compensation for bona fide meal periods.
61

In 1986, WHD acknowledged in an opinion letter “that the reference to meal periods in section 778.218(b) of Part 778 may not be compatible with the position which is contained in section 778.320(b),” and indicated that the issue was under review.
62

The Department subsequently clarified in a 1996 opinion letter that pay provided for a bona fide meal period is excludable from the regular rate under § 778.320(b).
63

While the Department clarified its position in an opinion letter more than 20 years ago, the Department is nonetheless concerned that the language in § 778.218(b) may cause confusion concerning the excludability of pay for bona fide meal periods. Thus, to remove any ambiguity and to codify its interpretation in regulation, the Department proposes to delete the reference to “lunch periods” from § 778.218(b).

61

Smiley,
839 F.3d at 331 n.5.

62
WHD Opinion Letter FLSA-937 (July 22, 1986).

63

See
WHD Opinion Letter, 1996 WL 1031805 (Dec. 3, 1996);
see also Ballaris
v.
Wacker Siltronic Corp.,
370 F.3d 901, 909 (9th Cir. 2004) (holding that pay for a bona fide lunch period was “properly excluded from the calculation of the regular rate under 29 U.S.C. 207(e)(2) as interpreted by revised section 778.320”); WHD Opinion Letter, 1997 WL 998021 (July 21, 1997) (stating that pay for bona fide meal periods need not be included in the regular rate).

Bona fide meal periods are not considered “hours worked” for purposes of the FLSA's minimum wage or overtime requirements, and employers are not required to pay for such time.
64

The Department proposes changing § 778.320 to clarify that the payment of compensation for bona fide meal periods alone does not convert such time to hours worked unless agreement or actual course of conduct establish that the parties have treated the time as hours worked. In the Department's enforcement experience, the treatment of bona fide meal breaks is frequently not subject to formal agreement and is often established by informal policy or course of conduct. Payments for such periods need only be included in the regular rate when it appears from all the pertinent facts that the parties have treated compensated bona fide meal periods as hours worked. This proposal clarifies the existing requirements and does not substantively change either the calculation of the regular rate or the determination of hours worked.

64

See
29 CFR 785.19.

3. Reimbursable Expenses

The second clause of section 7(e)(2) excludes from the regular rate “reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer's interests and properly reimbursable by the employer[.]”
65

The regulation in § 778.217 states that “[w]here an employee incurs expenses on his employer's behalf or where he is required to expend sums solely by reason of action taken for the convenience of his employer, section 7(e)(2) is applicable to reimbursement for such expenses.”
66

The Department promulgated this section in February 1950.
67

65
29 U.S.C. 207(e)(2).

66
29 CFR 778.217(a).

67

See
15 FR 623.

While § 778.217 limits reimbursable expenses to those “solely” in the interest of the employer, the statutory language does not include this limitation. Instead, the FLSA simply excludes all expenses incurred “in the furtherance of [the] employer's interests[,]”
68

and, as explained further below, neither the Department nor the courts have since restricted excludable expenses to only those that “solely” benefit the employer. The Department is concerned that this single use of the word “solely” in § 778.217 may be interpreted as more restrictive than what the FLSA actually requires. The Department therefore proposes to remove the word “solely” from § 778.217(a) to clarify its interpretation of the reimbursable expenses clause of section 7(e)(2). This clarification is consistent with the other subsections of § 778.217, as well as court rulings and the Department's opinion letters—which have not required that excludable expenses solely benefit the employer.

68
29 U.S.C. 207(e)(2).

Section 778.217(d) also discusses expenses that are excludable from the regular rate. It emphasizes only whether such payments benefit the employer or the employee; it does not require them to “solely” benefit one party or the other. Thus, payments for expenses that are “incurred by the employee on the employer's behalf or for his benefit or convenience” merit exclusion from the regular rate, but reimbursements for expenses “incurred by the employee for his own benefit,” such as “expenses in traveling to and from work, buying lunch, paying rent, and the like,” are not excluded from the regular rate.
69

69
29 CFR 778.217(d). This is consistent with the illustrative examples in § 778.217(b) of reimbursable expenses that may be excluded from the regular rate, which include “purchasing supplies, tools, materials, or equipment on behalf of his employer,” travel expenses, including living expenses away from home, incurred while traveling for work for the employer's benefit, and the cost of “supper money” to an employee in a situation where “he or she would ordinarily leave work in time to have supper at home, but instead must remain to work additional hours for the employer's benefit.”
See
29 CFR 778.217(b)(1), (b)(2), (b)(4).

Similarly, the Department's opinion letters do not analyze whether an expense is incurred solely for the employer's convenience when discussing whether it may be excluded from the regular rate. Instead, the opinion letters analyze simply whether expenses benefit the employer.
70

Furthermore, since 1955, the Department's policy in WHD's FOH has mirrored the statutory requirement that “expenses incurred by an employee in furtherance of his/her employer's interests” may be excluded from the regular rate, regardless of whether they “solely” benefit one party or the other.
71

70
For example, the cost of food for eating meals during travel out of town for work is for the employer's benefit; therefore, such reimbursement may be excluded from the regular rate.
See
Opinion Letter FLSA2004-3, 2004 WL 2146923 (May 13, 2004);
see also
Opinion Letter FLSA-828 (July 19, 1976) (“[r]eimbursement to an employee for expenses incurred on behalf of an employer” would not become part of the regular rate); Opinion Letter FLSA-940 (Mar. 9, 1977) (regular rate shall not include “reimbursement for expenses where an employee incurs out of pocket expenses on the employer's behalf”); Opinion Letter FLSA-1234 (July 12, 1985) (reimbursement must be for “expenses incurred by the employee on the employer's behalf or convenience”).

71
FOH 32d05a(a).

Consistent with the Department's practice and guidance, courts have not analyzed whether the expenses at issue were incurred solely for the employer's convenience when determining whether they are excludable from the regular rate. Instead, courts have emphasized the statutory requirement that the expenses need only benefit the employer.
72

72

See, e.g.,

Berry
v.
Excel Grp., Inc.,
288 F.3d 252, 253-54 (5th Cir. 2002) (concluding that reimbursements of travel expenses were primarily for the employer's benefit; therefore, such expenses were excluded from the regular rate);
see also Brennan
v.
Padre Drilling Co., Inc.,
359 F. Supp. 462, 465 (S.D. Tex. 1973) (per diem for traveling expenses is “expended by the employee in the furtherance of his employer's interest”);
Sharp
v.
CGG Land, Inc.,
840 F.3d 1211, 1215 (10th Cir. 2016) (“the proper focus under section 778.217(b)(3) is whether the $35 payments are for reimbursement of travel expenses incurred in furtherance of the employer's interests”).

The Department also proposes to clarify section 7(e)(2)'s requirement that only “reasonable” and “properly reimbursable” expenses may be excluded from the regular rate when reimbursed. Current § 778.217(b)(3) permits employers to exclude from the regular rate “[t]he actual or reasonably approximate amount expended by an employee who is traveling `over the road' on his employer's business, for transportation . . . and living expenses away from home, [or] other [such] travel expenses[.]” Section 778.217(c) cautions that “only the actual or reasonably approximate amount of the expense is excludable from the regular rate. If the amount paid as `reimbursement' is disproportionately large, the excess amount will be included in the regular rate.”

The Department proposes additional explanation on what is “reasonable”—and thus not “disproportionately large”—by referring to the Federal Travel Regulation. The Department believes that the amounts set in the Federal Travel Regulation are not excessive and are easily ascertained, given its “two principal purposes” of “balanc[ing] the need to assure that official travel is conducted in a responsible manner with the need to minimize administrative costs” and “communicat[ing] the resulting policies in a clear manner to Federal agencies and employees.”
73

The Department thus proposes to add regulatory text explaining that a payment for an employee traveling on his or her employer's business is per se reasonable if it is at or beneath the maximum amounts reimbursable or allowed for the same type of expense under the Federal Travel Regulation and meets § 778.217's other requirements. Those other requirements include that the reimbursement be for the “actual or reasonably approximate amount”
74

of the expense, that the expense be incurred on the employer's behalf, and that the expense not vary with hours worked.
75

The proposed regulatory text also clarifies that a reimbursement for an employee traveling on his or her employer's business exceeding the Federal Travel Regulation limits is not necessarily unreasonable. This is so because a payment may be more than that required “to minimize administrative costs” yet still within the

realm of reasonable business and industry norms.

73
41 CFR 300-1.2. Those amounts are published online annually by the General Services Administration.
See
GSA, Plan and Book,
www.gsa.gov/travel/plan-and-book.

74

Gagnon
v.
United Technisource, Inc.,
607 F.3d 1036, 1041-42 (5th Cir. 2010), provides a helpful contrast to a properly excludable reimbursement. There, multiple facts indicated that the employee's purported “per diem” was simply a scheme to avoid paying overtime. Those facts included the per diem's rise over time without any clear connection to travel or other expenses, its variance by the hour, its cap at 40 hours per week, and its payment in combination with a well-below-market wage.

75

See, e.g.,

Baouch
v.
Werner Enters., Inc.,
908 F.3d 1107, 1116 (8th Cir. 2018) (“Per diem payments that vary with the amount of work performed are part of the regular rate.”).

4. Other Similar Payments

Section 7(e) requires “all remuneration for employment” be included in the regular rate, subject to that section's eight listed exclusions. Section 7(e)(2) consists of three clauses, each of which address a distinct category of excludable compensation. As discussed above, the first excludes “payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause.” The second excludes “reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer's interests and properly reimbursable by the employee.” The third clause excludes “other similar payments to an employee which are not made as compensation for his hours of employment.”

“[O]ther . . . payments” are “similar” to those in the first two clauses because they are “not made as compensation for [an employee's] hours of employment.” The first two clauses share the essential characteristic of having no connection to the quantity or quality of work performed. The “other similar payments” clause thus should exclude payments not tied to an employee's hours worked, services rendered, job performance, credentials, or other criteria linked to the quality or quantity of the employee's work.
76

76

See Reich
v.
Interstate Brands Corp.,
57 F.3d 574, 578 (7th Cir. 1995) (The word “similar” in Section 7(e)(2) refers to other payments that do not depend at all on when or how much work is performed”);
Minizza
v.
Stone Container Corp.,
842 F.2d 1456, 1462 (3d Cir. 1988) (payments under Section 7(e)(2) all “share the essential characteristic . . . of not being compensation for hours worked or services rendered”).

In a sense, every benefit or payment given an employee is “remuneration for employment.”
77

Certainly benefits like paid vacation or sick leave are seen as such by many employers and employees. But the section 7(e)(2) exclusions make clear that whether or not they are remuneration, they are “not made as compensation for [the employee's] hours of employment” because they have no relationship to the employee's hours worked or services rendered. This interpretation gives meaning to the third clause. It allows employers to provide benefits unconnected to the quality or quantity of work, even if those benefits are remuneration of a sort.

77

Cf. Minizza,
842 F.2d at 1460 (“Employers have a finite amount to spend for the labor component of their product or service. This sum can be allocated solely as compensation on an hourly basis (in which event the payment would be fully includable in the `regular rate'), or it can assume any number of other forms . . . (in which case the payments may or may not be includable), in any ratio the parties care to set.”).

Interpreting the third clause as simply a restatement of the “remuneration” requirement would contravene basic principles of statutory interpretation.
78

Such an interpretation would equate the unique phrases “all remuneration for employment” and “compensation for [the employee's] hours of employment,” even though Congress used different words and thus, presumably, meant different things. This is especially so when considering that one phrase uses the word “employment” when the other uses the term “hours of employment.” Such an interpretation would also render the third clause redundant, another disfavored result. And it would be difficult to reconcile with the first clause of section 7(e)(2), in which the payments are clearly remuneration yet excludable from the regular rate.

78

See Reich,
57 F.3d at 578 (“The word `similar' then refers to other payments that do not depend at all on when or how much work is performed.”);
Minizza,
842 F.2d at 1462. (“[W]e interpret the phrase `other similar payments' by reading each clause of section 207(e)(2) separately. The phrase `other similar payments . . . not made as compensation for hours of employment' does not mean just other payments for idle hours or reimbursements, the two types of payments set forth in the two preceding clauses of the section, but payments not tied to hours of compensation, of which payments for idle hours and reimbursements are only two examples.”)
But see Flores
v.
City of San Gabriel,
824 F.3d 890, 899 (9th Cir. 2016) (“the `key point' ” for exclusion under the third clause “is whether the payment is `compensation for work' ” (quoting
Local 246 Utility Workers Union of Am.
v.
S. Cal. Edison Co.,
83 F.3d 292, 295 (9th Cir. 1996));
Acton
v.
City of Columbia, Mo.,
436 F.3d 969, 976 (8th Cir. 2006) (“Section 207(e)(2), properly understood, operates not as a separate basis for exclusion, but instead clarified the types of payments that do not constitute remuneration for employment for purposes of section 207.”).

With that said, “other similar payments” cannot be simply wages in another guise, as some lump-sum, formula-based cash payments are. When a payment is a wage supplement, even if not tied directly to employee performance or hours, it is still compensation for “hours of employment.”

Payments to employees are not excludable under the “other similar payments” clause merely because the payments are not specifically tied to an employee's hours of work.
79

For example, payments such as production bonuses,
80

and the cost of furnished board, lodging, or facilities,
81

which “though not directly attributable to any particular hours of work are, nevertheless, clearly understood to be compensation for services”
82

are not excludable under this provision. Payments that differ only in form from regular wages by, for instance, being paid in a monthly lump sum or as hardship premiums, are better characterized as wages or bonuses than as “other similar payments” excludable from the regular rate. The other similar payments clause cannot be interpreted so broadly as to “obliterat[e] the qualifications and limitations” placed on excludable payments specifically addressed in section 7(e)'s various other sections, which could render such limits “superfluous.”
83

79

See Local 246 Utility Workers Union of Am.
v.
S. California Edison Co.,
83 F.3d 292, 295 n.2 (9th Cir. 1996) (“Even if payments to employees are not measured by the number of hours spent at work, that fact alone does not qualify them for exclusion under 7(e)(2).”);
Featsent
v.
City of Youngstown,
70 F.3d 900, 904 (6th Cir. 1995) (“7(e)(2) does not exclude every payment not measured by hours of employment from the regular rate.”);
Reich,
57 F.3d at 577 (“We cannot read 7(e)(2) in isolation. . . . It is one among many exemptions, and a glance at a few of the others shows that 7(e)(2) cannot possibly exclude every payment that is not measured by the number of hours spent at work.”).

80

See
29 CFR 778.211(c).

81

See
29 CFR 778.116.

82
29 CFR 778.224(a).

83

Reich,
57 F.3d at 578.

The interpretation the Department states here has considerable support in the case law. The Third Circuit held in
Minizza
v.
Stone Container Corp.
that two lump sums paid to select employees to induce them to agree to a collective-bargaining agreement were excludable as an “other similar payment” because they were not compensation for hours worked or services rendered.
84

The court interpreted the clause to exclude “payments not tied to hours of compensation, of which payments for idle hours and reimbursements are only two examples.”
85

The court's decision that these payments were not compensation for employment rested in part on the fact that the “eligibility requirements were not meant to serve as compensation for service, but rather to reduce the employer's costs,” but also in part on the fact that “the eligibility terms themselves [for the lump sums] [did] not require specific service”—it did “not matter how many hours an employee worked during that period, nor how many hours he might work in the future.”
86

84

Minizza,
842 F.2d 1456, 1462.

85

Id.
at 1461.

86

Id.
at 1460-61;
see also id.
at 1462 (“If the payments were made as compensation for hours worked or services provided, the payments would have been conditioned on a certain number of hours worked or on an amount of services provided.”).

The Seventh Circuit espoused a similar understanding in
Reich
v.
Interstate Brands Corp.
87

The court held

that regular, planned $12 payments to bakers who worked weeks without two consecutive days off could not be excluded from the regular rate under section 7(e)(2). The court reasoned that the payments were materially no different from a higher base rate to compensate the bakers for taking on an unpleasant schedule.
88

“Other similar payments” are different, wrote the court. “The word `similar' . . . refers to other payments that do not depend at all on when or how much work is performed.”
89

Similarly, the Sixth Circuit has held that pay differentials based on employees' education level, shift differentials, and hazardous pay, are compensation for services rendered, unlike payments that “are unrelated to [employees'] compensation for services and hours of service.”
90

Some circuit courts have interpreted the “other similar payments” to not exclude payments that are “compensation for work.”
91

When these courts use these or similar phrases to capture the idea that the regular rate includes payments tied to work performance or that function as a wage supplement, they are correct. But insofar as they equate “compensation for work” with “remuneration for employment,”
92

that is difficult to reconcile with the text of the FLSA. As explained above, the FLSA uses two different phrases, “remuneration for employment” and “compensation for hours of employment,” each of which should be given unique content. And just as importantly, the first clause of section 7(e)(2) excludes vacation and sick leave, which is clearly remunerative; “other similar payments” to them can be remunerative too.

87
57 F.3d 574.

88

See id.
at 578-79.

89

Id.
at 578.

90

Featsent,
70 F.3d at 904-06.

91

See e.g.,

Flores,
824 F.3d at 899.

92

See Acton,
436 F.3d at 976 (“the language `not made as compensation for [the employee's] hours of employment' posited in § 207(e)(2) is but a mere re-articulation of the `remuneration for employment' requirement set forth in the preambulary language of § 207(e)”).

The Department believes that its interpretation espoused here, and applied in some of the clarifications to the regulations proposed below, also promotes a clear yet flexible standard for employers and employees to order their affairs. Employers can understand the standard: Payments are “other similar payments” when they do not function as formulaic wage supplements and are not tied to hours worked, services rendered, job performance, credentials, longevity, or other criteria linked to the quality or quantity of the employee's work, but are conditioned merely on one being an employee. (Basic commonsense conditions, such as a reasonable waiting period for eligibility
93

or the requirement to repay benefits as a remedy for employee misconduct, are permitted.) The standard also clarifies that there is space for a variety of creative benefits offerings, and encourages their provision to wide groups of employees instead of reserving them only for FLSA-exempt employees.

93

See Minizza,
842 F.2d at 1460 (“A review of the eligibility terms reflects a requirement only that a payee achieve the status of an active employee for a specified period of time prior to receipt. It does not matter how many hours an employee worked during that period, nor how many hours he might work in the future.”).

Section 778.224 of the regulations addresses miscellaneous items that are excludable from an employee's regular rate under the “other similar payments” clause of section 7(e)(2) because they are “not made as compensation for . . . hours of employment[.]”
94

Section 778.224(b) currently provides the following brief, nonexhaustive set of examples of “other similar payments” excludable from an employee's regular rate: “(1) Sums paid to an employee for the rental of his truck or car; (2) Loans or advances made by the employer to the employee; [and] (3) The cost to the employer of conveniences furnished to the employee such as parking space, restrooms, lockers, on-the-job medical care and recreational facilities.”
95

The Department added this set of examples to the part 778 regulations in 1950,
96

and has not substantively amended them since. The regulation makes clear that “it was not considered feasible” to provide an exhaustive list of excludable “other similar payments” given the “variety of miscellaneous payments [that] are paid by an employer to an employee under peculiar circumstances.”
97

94
29 U.S.C. 207(e)(2).

95
29 CFR 778.224(b).

96

See
15 FR 632 (1950), codified at 29 CFR 778.7(g).

97
29 CFR 778.224(a).

The Department continues to believe that providing a comprehensive list of
all
“other similar payments” excludable under section 7(e)(2)'s third clause is infeasible. The Department recognizes, however, that an updated list of examples would further help employers understand their legal obligations by addressing some of the innovative changes in compensation practices and workplace environments that have occurred over the last 69 years. Accordingly, the Department proposes clarifying in § 778.224(b) that the following items may be excluded from an employee's regular rate under the “other similar payments” clause of section 7(e)(2). Adding these clarifying examples may encourage employers to provide more of these types of benefits to their employees.

a. Specialist Treatment Provided Onsite

The Department proposes clarifying in § 778.224(b)(3) that employers may exclude from the regular rate the cost of providing onsite treatment from specialists such as chiropractors, massage therapists, personal trainers, counselors, Employment Assistance Programs, or physical therapists. Such specialist treatment resembles “on-the-job medical care,” which § 778.224(b)(3) already identifies as an excludable “convenience furnished to the employee.”
98

Employers that provide onsite specialist treatment do so for a variety of reasons, including to raise workplace morale and promote employee health. Such treatment does not constitute compensation for hours of employment under section 7(e)(2).
99

98
29 CFR 778.224(b)(3).

99
This proposal is not intended to affect the circumstances under which receiving medical attention is considered to be hours worked.
See
29 CFR 785.43.

b. Gym Access, Gym Memberships, and Fitness Classes

The Department proposes clarifying in § 778.224(b)(3) that the cost of providing employees with gym access, gym memberships, and fitness classes, whether onsite or offsite, is excludable from the regular rate. These fitness benefits resemble “recreational facilities,” which § 778.224(b)(3) already identifies as an excludable convenience provided to employees. According to one survey, a substantial number of employers provided fitness benefits.
100

Employers may provide such conveniences for many reasons, including to raise workplace morale and promote employee health. The Department proposes to clarify that providing gym benefits and fitness classes is not included in the regular rate as compensation for hours of employment.
101

100

See
Soc'y for Human Res. Mgmt., “2018 Employee Benefits: The Evolution of Benefits,” at 23 (June 2018),
https://www.shrm.org/hr-today/trends-and-forecasting/research-and-surveys/Documents/2018%20Employee%20Benefits%20Report.pdf.

101
In circumstances where maintaining a certain level of physical fitness is a requirement of the employee's job, the cost to the employer of providing exercise opportunities is a facility “furnished primarily for the benefit or convenience of the employer,” as described in § 531.3(d). Facilities furnished for the employer's benefit do not qualify as wages or remuneration for employment and thus need not be included in the regular rate.

c. Wellness Programs

The Department proposes adding an example in § 778.224(b)(4) to clarify that employers may exclude the cost of providing certain health promotion and disease prevention activities, often known as wellness programs. Examples of some common wellness programs include health risk assessments, biometric screenings, vaccination clinics (including annual flu vaccinations), nutrition classes, weight loss programs, smoking cessation programs, stress reduction programs, exercise programs, and coaching to help employees meet health goals.
102

Wellness programs are often provided to employees enrolled in an employer-sponsored health insurance plan, but some employers offer wellness programs to employees regardless of their health insurance coverage.

102

See, e.g.,
Soc'y for Human Res. Mgmt., “How to Establish and Design a Wellness Program,”
https://www.shrm.org/resourcesandtools/hr-topics/pages/howtoestablishanddesignawellnessprogram.asp
(last accessed Jan. 2, 2019).

Workplace wellness programs are similar to “on-the-job medical care” and “recreational facilities,” conveniences that the regulations already specify are excludable from an employee's regular rate.
103

Employers may provide such programs to, for example, reduce health care costs, reduce health-related absenteeism, and improve employee health and morale. Such programs are not intended to constitute compensation for hours of employment.

103
29 CFR 778.224(b)(3).

d. Employee Discounts on Retail Goods or Services

The Department proposes adding an example in § 778.224(b)(5) to confirm that discounts on retail goods and services may be excluded from the regular rate of pay as long as they are not tied to an employee's hours worked or services rendered. According to one survey, many employers provide employees with an option to purchase these types of goods or services at a discounted price relative to their full retail value.
104

Such discounts are commonly available to employees regardless of their quality or quantity of work, and it is solely the employees' choice whether to purchase anything under the discount. When these discounts are available to employees regardless of their hours worked or services rendered, and are not tied to any duties performed, they qualify as “other similar payments” under section 7(e)(2).
105

Alternatively, employee discounts could constitute “payments in the nature of gifts” under section 7(e)(1), where they are not based on the number of hours worked and are not in the nature of compensation.
106

104

See
Soc'y for Human Res. Mgmt., “2018 Employee Benefits: The Evolution of Benefits,” at 31 (June 2018),
https://www.shrm.org/hr-today/trends-and-forecasting/research-and-surveys/Documents/2018%20Employee%20Benefits%20Report.pdf
(from 2014 to 2018, employers offering an employee discount on company services ranged from 31% to 34%, and employers offering employer-sponsored personal shopping (
e.g.,
retail) discounts ranged from 11% to 19%).

105

See Reich,
57 F.3d at 578 (payments under Section 7(e)(2) are those “that do not depend at all on when or how much work is performed”);
Minizza,
842 F.2d at 1462 (payments under Section 7(e)(2) all “share the essential characteristic . . . of not being compensation for hours worked or services rendered”).

106

See, e.g.,

Lemus
v.
Denny's Inc.,
No. 10cv2061-CAB, 2015 WL 13740136, at *11 (S.D. Cal. July 31, 2015);
Rau
v.
Darling's Drug Store, Inc.,
388 F. Supp. 877, 879 (W.D. Pa. 1975).

More than 50 years ago, the Department stated that such employee discounts are not included in the regular rate of pay. In a 1962 opinion letter, the Department found that the value of “concessions granted to employees . . . on charges for telephone service” was “not part of wages includible in the regular rate of pay”—in part because “[s]uch concessions appear to be similar to discounts on merchandise offered by many retail establishments to their employees which [the Department] do[es] not regard as wages.”
107

Discounts like these are not fungible cash but merely a lower price on the employer's offerings. They appeal only to the employees who want to use them and are limited to the offered selection of goods or services. Employees must expend their own funds to avail themselves of the discounts. The discounts are presumably limited in their value, since employers likely do not offer discounts that allow their employees to arbitrage large quantities of goods or otherwise materially harm the business of their employer. And employers may also place conditions on the discounts to protect their interests by, for instance, requiring that discounted restaurant meals be eaten on the premises to prevent abuse.
108

These discounts are not intended to be compensation for hours of employment.

107
Opinion Letter, 1962 DOLWH LEXIS 217 (Oct. 31, 1962).

108

See Rodriguez
v.
Taco Bell Corp.,
896 F.3d 952, 954 (2018).

This proposal, therefore, would confirm the excludability of employee discounts on retail goods and services from the regular rate of pay, provided they are not tied to an employee's hours worked. Section 7(e)(2) provides that only payments “not made as compensation for [the employee's] hours of employment” are excludable from the regular rate of pay.
109

109
29 U.S.C. 207(e)(2);
see also
29 CFR 778.224(a).

e. Tuition and Other Benefits

The Department is proposing to add an example in § 778.224(b)(5) clarifying that certain tuition programs offered by employers may be excludable from the regular rate. Some employers today offer discounts for online courses, continuing-education programs, modest tuition-reimbursement programs, programs for repaying educational debt, and the like. Such tuition programs have been the subject of litigation,
110

and the Department believes more clarity in this area would be desirable. As long as tuition programs are available to employees regardless of their hours worked or services rendered, and are instead contingent merely on one's being an employee, the Department believes they would qualify as “other similar payments” under section 7(e)(2).
111

The Department also believes that at least some tuition programs offered by employers may be excludable from the regular rate under section 7(e)(1) as “sums paid as gifts.” Finally, the Department is considering whether certain tuition programs may also be excludable under section 7(e)(4) if provided pursuant to a bona fide plan, and, as stated more fully below, seeks comment specifically on the nature of tuition benefits provided by employers.

110

See White
v.
Publix Super Mkts., Inc.,
No. 3:14-cv-1189, 2015 WL 4949837 (M.D. Tenn. Aug. 19, 2015);
Adoma
v.
Univ. of Phoenix, Inc.,
779 F. Supp. 2d 1126 (E.D. Cal. 2011).

111

See Reich,
57 F.3d at 578 (payments under Section 7(e)(2) are those “that do not depend at all on when or how much work is performed”);
Minizza,
842 F.2d at 1462 (payments under Section 7(e)(2) all “share the essential characteristic . . . of not being compensation for hours worked or services rendered”).

The Department believes that tuition programs, in the main, function as the kinds of payments excludable under section 7(e)(2). Unlike wage supplements, these tuition programs are not fungible, any-purpose cash, but must be directed toward particular educational and training opportunities. These programs are also optional, appeal only to those employees who want to use them, and are directed toward educational and training pursuits outside the employer's workplace. Such tuition programs do not meet the basic necessities of life, such as food, clothing, or shelter. While the educational benefit may result in employees better able to accomplish the employer's objectives, these programs are not directly connected to the

employees' day-to-day duties for the employer.

Tuition programs could also potentially be “sums paid as gifts,” depending on their nature. Section 7(e)(1) excludes “sums paid as gifts; payments in the nature of gifts made at Christmas time or on other special occasions, as a reward for service, the amounts of which are not measured by or dependent on hours worked, production, or efficiency.” Because the first clause, “sums paid as gifts,” is separated from the second clause by a semi-colon, the first clause must address a separate set of excludable benefits from that in the second clause. There may be some overlap between “sums paid as gifts” and “payments in the nature of gifts made at Christmas time, on special occasions, or as a reward for services,” but the categories are not coextensive.

Specifically, sums under the first clause are those “paid as gifts”—that is, paid with the express understanding that they are a gift—as opposed to sums under the second clause, which are not expressly given as a gift but are nevertheless “in the nature of gifts” because of their timing. The second clause in 7(e)(1) therefore expands the universe of excludable gifts from sums that are obviously “paid as gifts” to include those that are also “in the nature of gifts,” but limits the latter category to those made at Christmas time, on special occasions, or as rewards for service. In either case, however, the payments must not be measured by or dependent on hours worked, production, or efficiency.
112

112
29 CFR 778.212.

Whether the Department ultimately excludes tuition programs from the regular rate in the final rule, and whether it does so under section 7(e)(1), (2), (4), or all or some of them, this proposed clarification excluding tuition programs from the regular rate would not affect the Department's regulations at § 531.32 referencing “meals, dormitory rooms, and tuition furnished by a college to its student employees” as an “other facility.”
113

The college environment is a unique context in which learning, work, and daily living are inextricably connected, tightly knit, and often all provided by the same entity, that being the college.

113
29 CFR 531.32(a).

The Department seeks comment on the following tuition-related questions: Are there other aspects of the FLSA, the Department's regulations, or parties' interactions with the Department that affect employers' and employees' conduct and that warrant consideration when it comes to making clear that tuition programs may be excluded from the regular rate? Do employers and employees feel that express regulatory clarification on excluding tuition programs from the regular rate would be helpful? Are employers hesitant to offer employees a tuition program because of concerns about legal compliance, litigation, or other issues related to the regular rate? What sorts of tuition programs are employers offering, and why are employers doing so? How do these tuition programs work? Are employers using bona fide third-party plans for tuition programs? What terms and conditions are employers setting on tuition programs? How are employers and employees benefiting from these tuition programs?

The Department acknowledges that the above examples proposed for express exclusion from the regular rate are just a few of many types of compensation that are not compensation for work and therefore excludable under section 7(e)(2). The Department welcomes suggestions for any additional examples that the Department should add to § 778.224 to illustrate other similar payments that are not compensation for work. The Department also welcomes suggestions about whether any of the above examples are excludable under other provisions of section 7(e). Finally, the Department welcomes suggestions about whether other sections in Part 778 should be updated to clarify that any of the above-referenced compensation is excludable from the regular rate under these or any other principles under section 7(e).

5. Show-Up Pay, Call-Back Pay, and Payments Similar to Call-Back Pay

Section 778.220 excludes from the regular rate “show-up” or “reporting” pay, which is defined as compensation for a specified minimum number of hours at the applicable straight-time or overtime rate on “infrequent or sporadic” occasions in which an employee is not provided with the expected amount of work after reporting as scheduled.
114

Payments for hours actually worked are included in the regular rate; amounts beyond what the employee would receive for the hours worked are excludable.

114

See
29 CFR 778.220.

Section 778.221 addresses “call-back” pay. Call-back pay is additional compensation for calling an employee back to work without prearrangement to perform extra work after the employee's scheduled hours have ended. It is typically paid for a specified number of hours at the applicable straight-time or overtime rate.
115

Call-back pay is treated the same as show-up pay under § 778.220.

115

See
29 CFR 778.221(a).

Section 778.222 addresses “other payments similar to `call-back' pay,” which are “extra payments made to employees on infrequent and sporadic occasions, for failure to give an employee sufficient notice to report for work on regular days of rest or outside of regular hours,” and “extra payments made on infrequent and sporadic occasions solely because an employee is called back to work before the expiration of a specified number of hours between shifts or tours, sometimes referred to as a `rest period.' ”
116

Such time is treated the same as show-up pay under § 778.220 and call-back pay under § 778.221. Sections 778.220, 778.221, and 778.222 require that the payments be “infrequent and sporadic” to be excludable from the regular rate.

116
29 CFR 778.222.

As referenced above, show-up or reporting pay is paid when the employee is scheduled to work but the employer fails to provide the expected amount of work.
117

As such, this type of payment is excludable under the first clause of section 7(e)(2), which excludes payments made for “occasional periods” when no work is performed due to the “failure of the employer to provide sufficient work.”
118

Section 778.220 accordingly limits exclusion of such payments to when they are made “on infrequent and sporadic occasions.”
119

117
Since 1940, the Department's position has been that show-up pay that exceeded pay due for hours worked was meant to compensate the employee for the consumption of his time and discourage employers from calling in employees for only a fraction of a day. Interpretive Bulletin No. 4 ¶ 70(8).

118
29 U.S.C. 207(e).

119
29 CFR 778.220.

Call-back pay and similar payments, in contrast, are not made for periods when the employer fails to provide sufficient work but are instead additional payments made to compensate the employee when the employer provides unanticipated work.
120

As such, these payments do not fall under the first clause of section 7(e)(2). The Department has stated that call-back pay described in § 778.221 and the other payments described in § 778.222 instead fall under the “other similar payments” clause of section 7(e)(2)—which Congress did not restrict to “occasional periods” (unlike the first

clause of section 7(e)(2)).
121

The FLSA does not require that payments under §§ 778.221 and 778.222 be only “occasional” to be excluded from the regular rate. Accordingly, the Department proposes removing the regulatory restriction that requires the payments discussed in §§ 778.221 and 778.222 to be “infrequent and sporadic.”
122

120
29 CFR 778.221-.222.

121

See
Opinion Letter FLSA-574 (Nov. 18, 1964) (“turn around” payments excludable under third clause); Opinion Letter FLSA-933 (July 20, 1964) (payment for failure to provide rest period excludable under third clause); Opinion Letter (Jan. 1, 1964) (stating that extra payments “made for recall to work outside of regular working hours and for shortened `rest periods' between shifts . . . may be excludable from the regular rate under the third clause” of section 7(e)(2)).

122
The Department is also proposing to update the reference to § 778.222 that appears in § 778.203(d).

Although the Department proposes removing the words “infrequent and sporadic” from §§ 778.221 and 778.222, the Department still believes that payments excluded under these provisions should be “without prearrangement.”
123

For example, if an employer retailer called in an employee to help clean up the store for 3 hours after an unexpected roof leak, and then again 3 weeks later for 2 hours to cover for a coworker who left work for a family emergency, payments for those instances would be without prearrangement and any call-back pay that exceeded the amount the employee would receive for the hours worked would be excludable. However, when payments under §§ 778.221 and 778.222 are so regular that they, in effect, are prearranged, they are compensation for work. For example, if an employer restaurant called in an employee server for two hours of supposedly emergency help during the busiest part of Saturday evening for 6 weeks out of 2 months in a row, that would be essentially prearranged and all of the call-back pay would be included in the regular rate. The Department therefore proposes to clarify that such payments under §§ 778.221 (“call-back” pay) and 778.222 (other payments similar to “call-back” pay) may be compensation for employment and therefore included in the regular rate. The Department further proposes to clarify that the regulations apply regardless of whether the compensation is pursuant to established practice, an employment agreement, or state or local law.

123
29 CFR 778.221;
see also Stewart
v.
San Luis Ambulance Inc.,
No. CV 13-09458-BRO (SSX), 2015 WL 13684710, at *7 (C.D. Cal. Oct. 6, 2015) (call-back payments must be “without prearrangement”).

The Department notes that certain states and localities regulate scheduling practices and impose a monetary penalty on employers (which is paid to employees) in situations analogous to those discussed in §§ 778.220, 778.221, and 778.222.
124

These state and local laws include certain penalties that potentially affect regular rate calculations. This includes, for example: (1) “Reporting pay” for employees who are unable to work their scheduled hours because the employer subtracted hours from a regular shift before or after the employee reports for duty;
125

(2) “clopening” or “right to rest” pay for employees who work the end of one day's shift and the start of the next day's shift with fewer than 10 or 11 hours between the shifts, or who work during a rest period;
126

(3) “predictability pay” for employees who do not receive the requisite notice of a schedule change;
127

and (4) “on-call pay” for employees with a scheduled on-call shift but who are not called in to work.
128

In light of these recent trends in state and local scheduling laws, the Department proposes to clarify the treatment of these penalty payments under the regulations.

124
A number of state and local jurisdictions have introduced laws regulating scheduling practices in recent legislative sessions.
See, e.g.,
H.B. 2467, 53rd Leg., 2d Reg. Sess. (Ariz. 2018); S.B. 321, 2018 Reg. Sess. (Conn. 2018); H.B. 5046, 100th Gen. Assemb. (Ill. 2018); S.B. 1000, 190th Leg. (Mass. 2017-18); H.B. 1614, S.B. 1116, 2017 Reg. Sess. (Md. 2017); S109, 218th Leg. (N.J. 2018); H.B. 741, 2015 Sess. (N.C. 2015); H.B. 7515, 7634, Jan. Sess. A.D. 2016 (R.I. 2016); Chi., Ill., Mun. Ordinance O2017-4947 (introduced June 28, 2017); Employee Scheduling (Call-in Pay), N.Y. St. Reg. LAB. 47-17-00011-P (proposed Nov. 11, 2017); S.B. 828, 73rd Leg. Assemb., 2017 Reg. Sess. (Or. 2017).

125

See, e.g.,
Seattle, Wash., Mun. Code 14.22.050 (2017).

126

See, e.g.,
N.Y.C., Admin. Code 20-1231 (2017); Seattle, Wash., Mun. Code 14.22.035 (2017); Emeryville, Cal. Mun. Code 5-39.06 (2017).

127

See, e.g.,
S.F., Cal., Police Code art. 33G (2015); Emeryville, Cal., Mun. Code 5-39.01 (2017); N.Y.C., N.Y., Admin. Code 20-1201 (2017); Seattle, Wash., Mun. Code 14.22.050 (2017).

128

See, e.g.,
S.F., Cal., Police Code art. 3300G.4(d) (2015); Seattle, Wash., Mun. Code 14.22.050. (2017).

Reporting pay pursuant to state or local scheduling laws would be treated like show-up pay under § 778.220 because it is payment for an employer's failure to provide expected work.
129

Compensation for any hours actually worked are included in the regular rate; compensation beyond that may be excluded from the regular rate as payment to compensate the employee for time spent reporting to work and to prevent loss of pay from the employer's failure to provide expected work during regular hours.

129

See, e.g.,
Seattle, Wash., Mun. Code 14.22.050 (2017).

“Clopening” or “right to rest” pay under state or local scheduling laws would be analyzed under § 778.222 and would therefore generally be excludable from the regular rate as long as the payments are not regular. The Department would also analyze “predictability pay” penalties under § 778.222, as they are analogous to payments for failure to give an employee sufficient notice to report for work outside of his or her regular work schedule. As with reporting and call-back pay, compensation “over and above the employee's earnings for the hours actually worked at his applicable rate (straight-time or overtime, as the case may be), is considered as a payment that is not made for hours worked,” and is therefore excludable from the regular rate.
130

130
29 CFR 778.222.

Finally, the Department proposes to analyze “on-call pay” scheduling penalties under § 778.223, which is entitled “[p]ay for non-productive hours distinguished.”
131

Under this regulation, the Department may require payment for “on-call” time to be included in the regular rate when such payments are “compensation for performing a duty involved in the employee's job.”
132

131

Id.
778.223.

132

Id.

B. Discretionary Bonuses Under Section 7(e)(3)

Section 7(e)(3) of the FLSA excludes from the regular rate “sums paid in recognition of services performed” if “both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the employer at or near the end of the period and not pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly.”
133

Section 778.211 of the regulations implements this exclusion and provides additional details concerning the types of bonuses that qualify for this exclusion. The Department proposes to elaborate on the types of bonuses that are and those that are not discretionary in § 778.211 to add clarity for employers and employees.

133
29 U.S.C. 207(e)(3).

The Department proposes modifying language in § 778.211(c) and adding a new paragraph (d) to clarify that, under longstanding principles, neither the label assigned to a bonus nor the reason it was paid conclusively determine whether it is discretionary under section 7(e)(3).
134

While attendance,

production, work quality, and longevity bonuses, as those terms are commonly used, are usually paid pursuant to a prior contract, agreement, or promise causing the employee to expect such payments regularly, and therefore are non-discretionary bonuses that must be included in the regular rate, there may be instances when a bonus that is labelled as one of these types of bonuses is not in fact promised in advance and instead the employer retains discretion as to the fact and amount of the bonus until at or near the end of the period to which the bonus corresponds. The Department proposes modifying the language in § 778.211(c) and adding a new paragraph (d) to make clear that the label assigned to a bonus is not determinative. Instead, the terms of the statute and the facts specific to the bonus at issue determine whether a bonus is an excludable discretionary bonus. Under section 7(e)(3), a bonus is discretionary and therefore excludable, regardless of what it is labelled or called, if both the fact that the bonus is to be paid and the amount are determined at the sole discretion of the employer at or near the end of the period to which the bonus corresponds and the bonus is not paid pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly.

134

See
29 U.S.C. 207(e)(3);
Minizza
v.
Stone Container Corp.,
842 F.2d 1456, 1462 n.9 (3d Cir. 1988) (observing that “what the payments are termed is not important”);
Walling
v.
Harnischfeger Corp.,
325 U.S. 427, 430 (1945) (“To discover [the

regular] rate . . . we look not to contract nomenclature but to the actual payments.”);
Donohue
v.
Francis Servs., Inc.,
No. Civ.A.04-170, 2005 WL 1155860, at *1 (E.D. La. 2005) (denying an employer's summary judgment motion over “amounts described as `discretionary bonuses' ”). This principle comports with longstanding interpretation of other FLSA provisions;
see, e.g.,
29 CFR 541.2 (cautioning that “[a] job title alone is insufficient to establish the exempt status of an employee” under Section 13(a)(1) of the Act).

Additionally, the Department proposes to include in new section § 778.211(d) examples of bonuses that may be discretionary to supplement the examples of bonuses that commonly are non-discretionary discussed in § 778.211(c). Such bonuses may include, for example, employee-of-the-month bonuses, bonuses to employees who made unique or extraordinary efforts which are not awarded according to pre-established criteria, severance bonuses, bonuses for overcoming stressful or difficult challenges, and other similar bonuses for which the fact and amount of payment is in the sole discretion of the employer until at or near the end of the periods to which the bonuses correspond and that are not paid “pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly.”
135

The Department recognizes that employers offer many differing types of bonuses to their employees, and that compensation practices will continue to evolve going forward. The Department therefore welcomes comment from the public about other common types of bonuses that the Department should address in § 778.211.

135

See
29 U.S.C. 207(e)(2);
see also Alonzo
v.
Maximus, Inc.,
832 F. Supp. 2d 1122, 1133 (C.D. Cal. 2011) (holding that bonuses to employees who “made unique or extraordinary efforts and were not awarded according to pre-established criteria or pre-established rates” were excludable) (internal quotation marks omitted); Opinion Letter FLSA2008-12, 2008 WL 5483051 (Dec. 1, 2008) (bonuses paid without prior promise or agreement to 911 dispatchers in recognition of high stress level of their job are excludable discretionary bonuses).
See
29 U.S.C. 207(e)(2).

C. Excludable Benefits Under Section 7(e)(4)

FLSA section 7(e)(4) excludes from the regular rate “contributions irrevocably made by an employer to a trustee or third person pursuant to a bona fide plan for providing old-age, retirement, life, accident, or health insurance or similar benefits for employees.”
136

Section 778.215(a)(2) explains that, among other things, that “[th]e primary purpose of the plan must be to provide systematically for the payment of benefits to employees on account of death, disability, advanced age, retirement, illness, medical expenses, hospitalization, and the like.” The Department proposes adding more examples of the types of modern benefit plans that may be excludable from the regular rate of pay. Specifically, the Department proposes to add examples for benefits on account of “accident, unemployment, and legal services” to § 778.215(a)(2). The addition of “accident” derives directly from section 7(e)(4), which expressly uses the term (even though the current regulations do not). The addition of benefits for unemployment and legal services reflects the Department's conclusion that, although employers may not have commonly offered these benefits when Congress enacted the FLSA in 1938,
137

they are “similar benefits” to those expressly listed in section 7(e)(4).

136
29 U.S.C. 207(e)(4).

137

See
Bureau of Labor Statistics, An Overview of Employee Benefits 20 (2005),
https://www.bls.gov/careeroutlook/2005/summer/art02.pdf.

First, like other specifically enumerated types of benefit plans under section 7(e)(4), these benefit plans typically provide monetary benefits that are “specified or definitely determinable on an actuarial basis.”
138

Second, benefit plans for unemployment or legal services protect employees from events that are rare but statistically predictable and that could otherwise cause significant financial hardship, just as is the case with life insurance, accident insurance, and the catastrophic-protection provisions of life insurance. Third, benefit plans for unemployment or legal services offer financial help when an employee's earnings are (unemployment) or may be (legal services) materially affected, as is the case with the other benefit plans. Employees who retire, reach an older age, or suffer an accident or health issue may be unable to work, or have their ability to work affected.

138
§ 778.215(a)(3)(i).

The Department notes that other characteristics of the various types of plans excludable under section 7(e)(4) may differ, but they still remain “similar” for purposes of the statute. Under the plain text of the statute, excludable plans need not be related to physical health. Retirement benefits are excludable, for instance, even though an employee may choose to retire for reasons wholly unrelated to health. And excludable plans also need not be limited to benefits for rare or even uncommon events. Health insurance, for instance, often pays for everyday medical expenses, and retirement is an event typically planned years in advance. Moreover, the benefits listed in the statute may be subject to various forms of payment. Retirement benefits are often a recurring payment, while accident and health benefits can fluctuate, and a life insurance death benefit can be paid in a lump sum. Therefore, insofar as the proposed additional examples differ among themselves or among other expressly listed benefits by not all being related to physical health, or not all being for rare events, or not all being paid out the same way, those differences do not make the proposed examples not “similar” under the statute. Indeed, such differences are encompassed in the statutory examples themselves.

Of course, these proposed examples, like the examples already provided in regulation and statute, would have to satisfy the other various requirements outlined in § 778.215.
139

These additions would simply help clarify that such plans are not categorically barred from qualifying for exclusion under section 7(e)(4). The Department welcomes comments and data on the prevalence and nature of these types of

programs and on whether there are other similar benefit plans that should be expressly included as examples.

139
Section 778.215(a) contains five conditions all of which must be met in order for employer contributions to be excluded from the regular rate under 7(e)(4). 29 CFR 778.215(a)(1)-(5).

D. Overtime Premiums Under Sections 7(e)(5)-(7)

FLSA sections 7(e)(5), (6), and (7) permit employers to exclude from the regular rate certain overtime premium payments made for hours of work on special days or in excess or outside of specified daily or weekly standard work periods.
140

More specifically, section 7(e)(5) permits exclusion of premiums for “hours worked in excess of eight in a day or in excess of the maximum workweek applicable to such employee [under section 7(a)] or in excess of the employee's normal working hours or regular working hours, as the case may be[.]”
141

Section 7(e)(6) permits exclusion of premiums “for work by the employee on Saturdays, Sundays, holidays, or regular days of rest, or on the sixth or seventh day of the workweek, where such premium rate is not less than one and one-half times the rate established in good faith for like work performed in nonovertime hours on other days[.]”
142

Section 7(e)(7) permits exclusion of premiums “in pursuance of an applicable employment contract or collective-bargaining agreement, for work outside of the hours established in good faith by the contract or agreement as the basic, normal, or regular workday (not exceeding eight hours) or workweek (not exceeding the maximum workweek applicable to such employee under subsection [7(a)], where such premium rate is not less than one and one-half times the rate established in good faith by the contract or agreement for like work performed during such workday or workweek.”
143

Additionally, section 7(h)(2) provides that extra compensation of the types described in sections 7(e)(5), (6), and (7) is creditable toward overtime compensation owed under section 7(a).
144

These are the only types of compensation excludable from the regular rate that are also creditable toward overtime compensation.
145

140

Id.
207(e)(5)-(7).

141

Id.
207(e)(5).

142

Id.
207(e)(6).

143

Id.
207(e)(7).

144

See id.
207(h)(2).

145

See
29 CFR 778.201(c).

Sections 778.202, 778.203, 778.205, and 778.207 explain the requirements for excluding from the regular rate the overtime premiums described in sections 7(e)(5) and (6).
146

Sections 778.202 and 778.202(e) refer to extra premium payments paid pursuant to contracts.
147

Similarly, § 778.205 uses an example of an extra premium payment paid pursuant to an employment “agreement,”
148

and § 778.207(a) refers to “contract premium rates[.]”
149

146

See id.
778.202, .203, .205, .207.

147

See id.
778.202(a), (b), (e).

148

Id.
778.205.

149

Id.
778.207(a).

The Department proposes amending §§ 778.202 and 778.205 to remove references to employment agreements and contracts in those sections to eliminate any confusion that the overtime premiums described in sections 7(e)(5) and (6) may be excluded only under written contracts or agreements. These regulatory clarifications are consistent with sections 7(e)(5) and (6) of the FLSA, neither of which requires that the overtime premiums be paid pursuant to a formal employment contract or collective bargaining agreement. Those statutory exclusions contrast with section 7(e)(7), which explicitly requires “an employment contract or collective-bargaining agreement” to exclude premiums “for work outside of the hours established in good faith by the contract or work agreement as the basic, normal, or regular workday (not exceeding eight hours) or workweek[.]”
150

Exclusion of premium payments under sections 7(e)(5) and (6) turns on deviation from the employee's normal work schedule. The removal of the word “contract” from the regulations does not change the fact that, while there need not be a formal contract or agreement under sections 7(e)(5) or (6), there must be a discernable schedule of hours and days worked from which the excess or nonregular hours for which the overtime premiums are paid are distinguishable.
151

Relatedly, the Department proposes to amend § 778.207 to refer to the “premium payments” instead of “contract premium rates.” This change is consistent with the description of the overtime premiums found in § 778.201 and removes any implication that all of the overtime premium payments must be paid pursuant to a formal contract.

150
29 U.S.C. 207(e)(7).

151
Section 7(e)(5) allows exclusion of premiums for hours “in excess of the employee's normal working hours or regular working hours” and section 7(e)(6) permits exclusion of premiums for work on regular days of rest or on the sixth or seventh day of the workweek. Thus, exclusion under these provisions requires a discernable schedule.

While the regulations at §§ 778.202, 778.205, and 778.207 have, since 1950, referred to employment contracts and agreements when describing the types of overtime premiums excludable under sections 7(e)(5) and (6),
152

the Department has not interpreted the use of the words “contract” or “agreement” to limit excludable overtime premium payments to only those paid pursuant to a formal contract or collective bargaining agreement.
153

The Department has historically evaluated the actual practice of the parties to determine if extra payments are true overtime premiums that are excludable from the regular rate.
154

In the initial publication of part 778 in 1948, for example, the Department emphasized the primacy of “actual practice” over any contractual terms when assessing whether extra payments were true overtime premiums that could be excluded from the regular rate.
155

152

See
15 FR 623 (the precursor to §§ 778.202, .205, and .207 was located in § 778.5 in the 1950 version of the regulations).

153
The FOH sections discussing sections 7(e)(5) and (6) overtime premiums make no reference to the need for a contract, and instead instructs investigators to look to the employee's normal hours or days of work “as established by agreement or practice.” FOH 32e01;
see also id.
32e04 (describing criteria for 207(e)(6) overtime premium for work on special days without any reference to a requirement that the compensation be paid pursuant to contract).

154

See
13 FR 4534 (Aug. 5, 1948) (codified at 29 CFR 778.2 (1948)).

155

Id.
Those regulations stated that “[t]he mere fact that a contract calls for premium payments for work on Saturdays, Sundays, holidays or at night would not necessarily prove that the higher rate is [a non-excludable shift differential] paid merely because of undesirable working hours if, as a matter of fact, the actual practice of the parties shows that the payments are made because the employees have previously worked a specified number of hours or days, according to a bona fide standard.” 29 CFR 778.2 (1948).

Consistent with the Department's practice, most courts have not required employers using the exclusions in sections 7(e)(5) and (6) to establish the existence of any formal contract or agreement with employees.
156

Even apart from sections 7(e)(5) and (6), courts interpreting the FLSA do not generally require that contracts be in writing (unless specifically required by statute), and they likewise emphasize the importance of the employer's actual

practices in determining whether a pay practice complies with the FLSA.
157

156

See Fulmer
v.
City of St. Albans, W. Va.,
125 Fed. App'x 459, 460 (4th Cir. Jan. 7, 2005) (holding that city properly excluded overtime premiums from regular rate under 207(e)(5) even though the premiums were not included in employment contract and were mentioned only during the employment interview);
Hesseltine
v.
Goodyear Tire & Rubber Co.,
391 F. Supp. 2d 509, 522 (E.D. Tex. 2005) (“If an employer voluntarily pays an employee a premium rate contingent upon his working more than eight hours in one day, then such payment may be excluded from the employee's regular rate and credited toward unpaid overtime.”);
Laboy
v.
Alex Displays, Inc.,
No. 02 C 8721, 2003 WL 21209854, at *4 (N.D. Ill. May 21, 2003) (“The court need not determine whether the parties had an agreement for purposes of [section] 7(e)(7) because the payments must be excluded from the regular rate under [section] 7(e)(5).”).

157

See Bay Ridge,
334 U.S. at 464 (“As the regular rate cannot be left to a declaration by the parties as to what is to be treated as the regular rate for an employee, it must be drawn from what happens under the employment contract.”);
Singer
v.
City of Waco, Tex.,
324 F.3d 813, 824 (5th Cir. 2003) (same);
see also 149 Madison Ave. Corp.
v.
Asselta,
331 U.S. 199, 204 (1947) (“[I]n testing the validity of a wage agreement under the Act the courts are required to look beyond that which the parties have purported to do.”) (citing
Walling
v.
Youngerman-Reynolds Hardwood Co.,
325 U.S. 419, 424-25 (1945) (“Once the parties have decided upon the amount of wages and the mode of payment the determination of the regular rate becomes a matter of mathematical computation, the result of which is unaffected by any designation of a contrary `regular rate' in the wage contracts.”).

The Department proposes to clarify these regulations to eliminate unnecessary confusion concerning the excludability of payments under sections 7(e)(5) and (6).
158

These proposed changes would be limited to the regulatory sections discussed in §§ 778.202, 778.205, and 778.207 and are not intended to affect the Department's longstanding interpretation in other contexts that a required “contract” may consist of an oral agreement.
159

158
Although most courts do not require an employment contract before applying the overtime premium credits found in sections 7(e)(5) or (6), there is evidence that the regulations have created some confusion.
See, e.g., Scott
v.
City of New York,
629 F. Supp. 2d 266, 269-70 (S.D.N.Y. 2009) (“The FLSA credits only three categories of
contractual
compensation towards overtime compensation mandated by the Act: premium pay for working more than a contractually-established number of hours day or week, premium pay at a rate of time and one-half for working on weekends and holidays, and premium pay at a rate of time and one-half for working outside of ordinary hours, such as a night shift.”) (emphasis in original);
Jarmon
v.
Vinson Guard Servs., Inc.,
No. 2:08-cv-2106-VEH, 2010 WL 11507029, at *14 (N.D. Ala. July 13, 2010) (“However, because there is no evidence of a collective bargaining agreement or an employment contract in this case, [section] 207(e)(5) is not applicable.”). Moreover, the language of the regulations may cause confusion for employers who are less familiar with WHD's practices or the relevant case law.

159

See
29 CFR 778.204 (“[A]n employment contract for purposes of section 7(e)(7) may be either written or oral.”).

E. Clarification That Examples in Part 778 Are Not Exclusive

The Department recognizes that compensation practices can vary significantly and will continue to evolve. In general, the FLSA does not restrict the forms of “remuneration” that an employer may pay—which may include an hourly rate, salary, commission, piece rate, a combination thereof, or any other method—as long as the regular rate is equal to at least the applicable minimum wage and non-exempt employees are paid any overtime owed at one and one-half times the regular rate. While the eight categories of excludable payments enumerated in section 7(e)(1)-(8) are exhaustive,
160

the Department proposes to confirm in § 778.1 that, unless otherwise indicated, part 778 does not contain an exhaustive list of permissible or impermissible compensation practices. Rather, it provides examples of regular rate and overtime calculations that, by their terms, may or may not comply with the FLSA, and the types of compensation excludable from regular rate calculations under section 7(e). Because it is impossible to address all the various compensation and benefits arrangements that may exist between employers and employees, both now and in the future, the Department proposes to specify in § 778.1 that the examples set forth in part 778 of the types of payments that are excludable under section 7(e)(1)-(8) are not exhaustive; there may be other types of payments not discussed or used as examples in part 778 that nonetheless qualify as excludable payments under section 7(e)(1)-(8).

160

See, e.g., O'Brien
v.
Town of Agawam,
350 F.3d 279, 294 (1st Cir. 2003);
Caraballo
v.
City of Chicago
, 969 F. Supp. 2d 1008, 1015 (N.D. Ill. 2013); see also 778.200(c).

F. Basic Rate Calculations Under Section 7(g)(3)

Section 7(g) of the FLSA identifies three circumstances in which an employer may calculate overtime compensation using a basic rate rather than the regular rate, provided that the basic rate is established by an agreement or understanding between the employer and employee, reached before the performance of the work.
161

The third of these, identified in section 7(g)(3), allows for the establishment of a basic rate of pay when the rate is “authorized by regulation by the Administrator as being substantially equivalent to the average hourly earnings of the employee, exclusive of overtime premiums, in the particular work over a representative period of time[.]”
162

Part 548 addresses the requirements for using such basic rates to compute overtime pay under section 7(g)(3).
163

161

See
29 U.S.C. 207(g).

162

Id.
207(g)(3). By contrast, section 7(g)(1) allows for a basic rate to be established for employees employed at piece rates, and section 7(g)(2) allows for a basic rate to be established for employees performing two or more kinds of work for which different hourly or piece rates apply.
Id.
207(g)(1)-(2). Only the basic rate provided by section 7(g)(1) is limited to employees paid on a piece rate basis. The Department proposes to clarify the cross reference in § 548.1 to the regulations for sections 7(g)(1) and (2), which are at 29 CFR 778.415-.421.

163

See
29 CFR 548.1;
see also id.
778.400-.401.

Section 548.2 provides ten requirements for using a basic rate when calculating overtime compensation.
164

Section 548.3 discusses six different authorized basic rates that may be used if the criteria in § 548.2 are met.
165

Section 548.300 explains that these basic rates “have been found in use in industry and the Administrator has determined that they are substantially equivalent to the straight-time average hourly earnings of the employee over a representative period of time.”
166

As relevant to this proposed rulemaking, § 548.3 authorizes a basic rate that excludes “additional payments in cash or in kind which, if included in the computation of overtime under the Act, would not increase the total compensation of the employee by more than 50 cents a week on the average for all overtime weeks . . . in the period for which such additional payments are made.”
167

Section 548.305(b) explains that, under § 548.3(e), upon agreement or understanding between an employer and employee, the basic rate may exclude from the computation of overtime “certain incidental payments which have a trivial effect on the overtime compensation due.”
168

This section provides a nonexhaustive list of examples of payments that may be excluded, so long as the payments would not increase an employee's total compensation in any workweek by more than $0.50, including “modest housing,” “bonuses or prizes of various sorts,” and compensation “for soliciting or obtaining new business.”
169

It also provides examples with specific amounts of additional payments to illustrate the application of § 548.3(e).
170

The $0.50 amount is also referenced in § 548.400(b). The Department last updated these regulations more than 50 years ago, in 1966.
171

164

See id.
548.2.

165

See id.
548.3.

166

Id.
548.300.

167

Id.
548.3(e).

168

Id.
548.305(b).

169

Id.
548.305(b).

170

See id.
548.305(c), (d), (f).

171

See
31 FR 6769.

The Department proposes to update the $0.50 amount in §§ 548.3, 548.305, and 548.400. Rather than provide a specific dollar or cent amount, however, the Department proposes to replace the $0.50 language in these regulations with “40 percent of the applicable hourly minimum wage under section 6(a) of the Act.” Notably, this is the same methodology that the Department used in the past to update the threshold. In 1955, the Department set the threshold

for excludable amounts in § 548.3(e) at $0.30—which, at the time, was 40 percent of the hourly minimum wage required under the FLSA ($0.75 per hour).
172

Similarly, in 1966, after the minimum wage increased to $1.25 per hour, the Department correspondingly increased the threshold amount in § 548.3(e) to $0.50—which, again, was 40 percent of the hourly minimum wage at the time.
173

The current minimum wage is $7.25 per hour, and 40 percent of $7.25 is $2.90. To avoid the need for future rulemaking in response to any further minimum wage increases, however, the Department proposes to replace the current $0.50 references in §§ 548.3(e), 548.305, and 548.400(b) with “40 percent of the applicable minimum hourly wage under section 6(a) of the Act.” Relatedly, the Department also proposes to update the examples provided in § 548.305(c), (d), and (f) with updated dollar amounts, and to fix a typographical error in § 548.305(e) by changing the phrase “would not exceed” to “would exceed.” The Department invites comment as to this proposal, and specifically invites comment as to (1) whether the additional payments that are excludable if they would not increase total overtime compensation should be tied to a percentage of the applicable minimum wage under the Fair Labor Standards Act, or a percentage of the applicable minimum wage under state or Federal law; and (2) whether 40 percent of the applicable minimum wage is an appropriate threshold, or if this proposed percentage should be increased or decreased.

172

See
20 FR 5679.

173

See
31 FR 4149 (Mar. 9, 1966); 31 FR 6769.

IV. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501
et seq.,
and its attendant regulations, 5 CFR part 1320, require the Department to consider the agency's need for its information collections and their practical utility, the impact of paperwork and other information collection burdens imposed on the public, and how to minimize those burdens. This NPRM does not require a collection of information subject to approval by the Office of Management and Budget (OMB) under the PRA, or affect any existing collections of information. The Department welcomes comments on this determination.

V. Executive Order 12866, Regulatory Planning and Review; and Executive Order 13563, Improved Regulation and Regulatory Review

A. Introduction

Under E.O. 12866, OMB's Office of Information and Regulatory Affairs (OIRA) determines whether a regulatory action is significant and, therefore, subject to the requirements of the E.O. and OMB review.
174

Section 3(f) of E.O. 12866 defines a “significant regulatory action” as an action that is likely to result in a rule that: (1) Has an annual effect on the economy of $100 million or more, or adversely affects in a material way a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities (also referred to as economically significant); (2) creates serious inconsistency or otherwise interferes with an action taken or planned by another agency; (3) materially alters the budgetary impacts of entitlement grants, user fees, or loan programs, or the rights and obligations of recipients thereof; or (4) raises novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the E.O. OIRA has determined that this proposed rule is significant under section 3(f) of E.O. 12866.

174

See
58 FR 51735 (Sept. 30, 1993).

E.O. 13563 directs agencies to propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs; that it is tailored to impose the least burden on society, consistent with achieving the regulatory objectives; and that, in choosing among alternative regulatory approaches, the agency has selected the approaches that maximize net benefits. E.O. 13563 recognizes that some benefits are difficult to quantify and provides that, when appropriate and permitted by law, agencies may consider and discuss qualitatively values that are difficult or impossible to quantify, including equity, human dignity, fairness, and distributive impacts.

B. Economic Analysis

This economic analysis provides a quantitative analysis of regulatory familiarization costs attributable to the proposed rule and a qualitative analysis of other potential benefits, cost savings, and transfers. This includes a discussion of cost savings resulting from reduced litigation. As described above, this rule, if finalized as proposed, clarifies existing regulations for employees and employers in the 21st-century workplace with modern forms of compensation and benefits. The Department believes that these updates will provide clarity and flexibility for employers interested in providing such benefits to their employees. The Department welcomes comments that provide data or information regarding the potential benefits, cost savings, and transfers of this proposed rule, which may help the Department quantify such effects in the Final Rule's analysis.

1. Overview of Proposed Changes

This NPRM proposes several changes to the existing regulatory language in 29 CFR part 778 to update and clarify the FLSA's regular rate requirements, and proposes a change to 29 CFR part 548 addressing a “basic rate” that can be used to calculate overtime compensation under section 7(g)(3) of the FLSA when specific conditions are met. Specifically, the Department's NPRM includes the following proposals:

• A proposal to clarify in § 778.219 that payments for unused paid leave, including paid sick leave, may be excluded from an employee's regular rate of pay;

• A proposal to clarify in §§ 778.218(b) and 778.320 that pay for time that would not otherwise qualify as “hours worked,” including bona fide meal periods, may be excluded from an employee's regular rate unless an agreement or established practice indicates that the parties have treated the time as hours worked;

• A proposal to clarify in § 778.217 that reimbursed expenses need not be incurred “solely” for the employer's benefit for the reimbursements to be excludable from an employee's regular rate;

• A proposal to clarify in § 778.217 that certain reimbursements are per se reasonable and excludable from the regular rate;

• A proposal to eliminate the restriction in §§ 778.221 and 778.222 that “call-back” pay and other payments similar to call-back pay must be “infrequent and sporadic” to be excludable from an employee's regular rate, while maintaining that such payments must not be so regular that they are essentially prearranged;

• A proposal to clarify in § 778.224 that the cost of providing wellness programs, onsite specialist treatment, exercise opportunities, employee discounts on retail goods and services, and certain tuition benefits may be excluded from an employee's regular rate of pay;

• A proposal to clarify in § 778.215 the types of benefit plans that are

excludable as “similar benefits for employees” under section 7(e)(4);

• A proposal to clarify in §§ 778.202, 778.203, 778.205, and 778.207 that employers do not need a prior contract or agreement with the employee(s) to exclude certain overtime premiums described in sections 7(e)(5) and (6) of the FLSA;

• A proposal to clarify and provide examples in § 778.211 of discretionary bonuses that are excludable from an employee's regular rate of pay under section 7(e)(3) of the FLSA;

• A proposal to clarify in § 778.1 that the examples of compensation discussed in part 778 of the types of excludable payments under section 7(e)(1)-(8) are not exhaustive; and

• A proposal to increase, from $0.50 to a weekly amount equivalent to 40 percent of the hourly federal minimum wage (currently $2.90, or 40 percent of $7.25), the amount by which total compensation would not be affected by the exclusion of certain additional payments when using the “basic rate” to compute overtime provided by § 548.3(e).

To measure potential costs, cost savings, benefits, and transfers relative to a baseline of current practice, the Department has attempted to distinguish between specific proposals that would
change
existing requirements, and those that would merely
clarify
existing requirements. Here, the Department believes that only two of the proposals described above would constitute changes to existing regulatory requirements: (1) The proposal to increase the threshold for exclusion of certain payments when using the “basic rate” to compute overtime under § 548.3(e), from $0.50 to a weekly amount equivalent to 40 percent of the hourly federal minimum wage (currently $2.90, or 40 percent of $7.25); and (2) the proposal to eliminate the restriction in §§ 778.221 and 778.222 that call-back pay and similar payments must be “infrequent and sporadic” to be excludable from the regular rate, while maintaining that such payments must not be so regular that they are essentially prearranged. Both of these proposed changes are deregulatory in nature.

The Department believes that all of the remaining proposals would be clarifications consistent in substance with the existing regulations and statute. Thus, none of the proposals in this NPRM would impose any new regulatory requirements, or require any regulated entity (
i.e.,
any employer) to change its conduct to remain in compliance with the law.

2. Potential Costs

The only potential costs attributable to this proposed rulemaking are regulatory familiarization costs. Familiarization costs represent direct costs to businesses associated with reviewing any changes to regulatory requirements caused by a final rule. Familiarization costs do not include recurring compliance costs that regulated entities would incur with or without a rulemaking.
175

The Department calculated regulatory familiarization costs by multiplying the estimated number of firms likely to review the proposed rule by the estimated time to review the rule and the average hourly compensation of a Compensation, Benefits, and Job Analysis Specialist.

175
For example, time and resources spent on an annual basis to train staff on FLSA compliance are not familiarization costs attributable to any part

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2019-05687. Public record. Not legal advice.