On March 26, 2020, the U.S. Department of Labor (DOL) issued three new Opinion Letters, FLSA2020-3, FLSA2020-4, and FLSA2020-5 which all address various payments that may be excluded from the regular rate. This is important because the compensation that is included into the regular rate will increase the overtime rate. In a very short breakdown, here are the three clarifications:
Longevity Payments. FLSA 2020-3 clarifies that longevity payments made to employees as a part of a routine payment (i.e. you get $500 after 1 year, $5,000 after 10 years, etc.), are not excludable as gifts because the nature of the payment is non-discretionary. However, if a policy provides that a longevity payment “may” be made, in the employer’s discretion, that payment could be excluded from the regular rate as a “gift”.
Referral Bonuses. FLSA 2020-4 instructs us that a referral bonus does not need to be included in the regular rate if the referral program is voluntary, does not take significant time, and is limited to conversations as a part of employees’ social affairs outside of work hours. In other words, word-of-mouth referrals may be excluded from the regular rate (not spiffs for HR recruiters doing their job). However, if there is a referral bonus for longevity (i.e. the employee referred works for a year, the referring employee gets a bonus), then that payment would be part of the regular rate, because it is essentially a longevity bonus.
Employer Life Insurance Contributions. FLSA 2020-5 opines that employer contributions to a group term life insurance policy do not need to be included in an employee’s regular rate so long as the contributions meet the statutory and regulatory requirements (this is a lot more complicated, so if this is an issue, suggest you review the actual opinion letter and law).