By Jill Ripke and Aimee Raimer

The DOL recently issued guidance clarifying that employer-sponsored COVID-19 incentive payments, such as hazard pay, must be included in the regular rate for calculating overtime payments.

Employers may compensate non-exempt employees in a variety of ways. The amount of overtime pay must be calculated using the employee’s regular rate of pay, which generally is calculated by dividing an employee’s total compensation for employment, less any statutory exclusions, by the total number of hours worked.

The FLSA provides an exhaustive list of payments that may be excluded from the regular rate of pay when calculating overtime payments. Recently, the DOL issued guidance clarifying that employer-paid incentive payments, including hazard pay for work performed during the COVID-19 emergency, do not meet any statutorily authorized exclusion and thus must be included in the regular rate used to compute employees’ overtime pay. This requirement applies both to private and state or local government employers who have opted to provide incentive payments to employees for working during the national health crisis.

The DOL’s COVID-19 and the Fair Labor Standards Act Questions and Answers Nos. 20–29 specifically delineate between employer-provided incentive pay, which must be included in the regular rate used to calculate employees’ overtime pay, and incentive payments provided to employees by a state or local government, which may excluded from the regular rate. Employers may also exclude from the regular rate of pay any indirect state or local government incentive payments that use employers as an intermediary to facilitate such payments, unless the employer has agreed to treat the government-provided payments as compensation for employment. Upon any express or implicit agreement between an employer and its employees to treat government-provided incentive payments for work performed during COVID-19 as compensation for employment, the employer must include those payments in calculating its employees’ regular rate of pay.

In accordance with the DOL’s guidance, employers who have opted to provide incentive payments, including hazard pay, to their employees for work during the COVID-19 emergency should be sure to include those payments in the regular rate when calculating any overtime compensation owed to their employees. Please contact experienced counsel if your company has questions about these calculations.