The United States Department of Labor announced it will change their Fair Labor Standards Act (FLSA) regulations to exclude certain types of bonuses and employee perks from the wage rate used to calculate overtime payments.
So whether you believe this is another gut punch for wage earners or a grant of freedom to business to offer perks to their employees, keep this in mind about the new rule:
First rules from an executive agency don’t have the full force of law. Administrative regulations are subject to court review. On the bright side for employee advocates, the Supreme Court is giving less deference to those regulations. But on the “dark side”, if you believe that a lot of Supreme Court cases are outcome driven, then it’s likely that ultimately the Supreme Court will uphold the new rules based on their policy preferences that favor business over labor.
Secondly, assuming the DOL rule is upheld by federal courts, state wage and hour laws may have a broader definition of what constitutes wages. For example, the Nebraska Wage Payment and Collection Act includes fringe benefits that are not included under the FLSA as wages.
Finally, the DOL rule will have no bearing on how state workers’ compensation courts define wages. Wages determine disability rates for work injuries. Nebraska has a simple and relatively employee-friendly rule for when perks constitute wages: if an employer reimburses and employee for an expense, it is not considered wages. If the perk constitutes an economic gain, then it is wages.
There are three conditions to when non-wage payments can count as wages under the Nebraska workers compensation act. The first is that the perk or benefit has to be agreed upon in advance. Occasional gifts from an employer to employee probably don’t count.
Secondly case law indicates that the benefit needs to flow directly to the employee. For example, a pension benefit paid by the employer to the employee’s union does not count as wages. Does the same logic apply to health insurance premiums paid to an insurer? Does the same logic apply to payments made by an employer self-insured for health insurance? Does the same logic apply to an employer-match to a defined contribution retirement plan such as a 401k?
Finally, the payment of perk or benefit may not be counted as wages even if it meets the first two conditions if a court determines that it represents a windfall to the employee or distorts their earnings. This is a case by case decision. In my view any concerns about “windfalls” need to be counter-balanced with arguments about how Nebraska law is designed to underpay injured employees in many circumstances.