Miriam Brooks, with Kelley Kronenberg in Davie, FL.

The update to the Wages and Fair Labor Standards Act that took effect in mid-January removed much of the uncertainty that troubled employers when they calculated overtime pay for hourly workers. This first change in 50 years should result in fewer lawsuits because the rules are now much clearer.

The U.S. Department of Labor has identified forms of compensation to be excluded when employers compute hourly wages. They do not apply to salaried or otherwise exempt workers. However, in the instance of a class action lawsuit in respect to a misclassified exempt worker, the new rule would apply.

The benefits now excluded range from onsite medical treatment, such as flu shots, to parking reimbursements to wellness programs. A much brighter, though not razor-sharp line exists.

Here's an example: The Department of Labor is clarifying grey areas in the computation of the regular rate of pay. For instance, an employer calculating the overtime pay of an employee paid $10 an hour plus parking benefits worth $2 an hour could potentially compute overtime based on $12 an hour. Now, the department is saying no, parking benefits are not considered part of hourly wages; the overtime rate of 1.5 times the hourly rate is $15 an hour, not the previous $18 an hour.

Excludable perks from the regular rate of pay can potentially include gym memberships, fitness classes, organization membership dues, travel expenses, certain exam fees and payment for unused leave.

Applying those rules requires an examination and possible rewriting of corporate policies so that they meet Labor Department standards. A close look is needed because the department has written descriptions of what qualifies.

Case in point: Call-back pay is not included in computing regular hourly wages if it is infrequent and sporadic. Reimbursement expenses, such as cell phone plans, organization membership dues, travel and certain exam fees, are excludable. It defines per se "reasonable payments," as not exceeding the maximum travel reimbursement under the Federal Travel Regulation System or the optional IRS substantiation amounts.

Companies should pay close attention to how they reward employees who exceed expectations. Non-discretionary bonuses are included in the regular rate of pay. If the bonus is paid pursuant to a promise, contract or agreement it will be included in the regular rate of pay. For example, an employer who promises to pay a $500 bonus based on 100% attendance during the year qualifies as non-discretionary. A boss who bends the rules and gives an employee the bonus even though the person missed eight or nine days of work without using leave time is exercising personal judgment.

Some discretionary bonuses are excludable from the regular rate of pay. If the employer retains the sole discretion as to the amount of the bonus and the fact that payment is awarded, without prior promise or agreement, then it is excludable. Some examples of excludable nondiscretionary bonuses are an employee of the month award and severance bonuses; assuming the bonus was not paid due to a prior contract, agreement or promise causing an expectation of regular payment, it is excludable.

Another excludable discretionary bonus is if the employer offers a referral bonus, however, the employee's participation in the activity must be voluntary, the employee's efforts in connection with the activity should not involve significant amounts of time, and the activity must be limited to after-hours solicitation among friends, relatives, neighbors and acquaintances as part of the employee's social affairs.

The math matters when the employee's attorney is calculating damages, especially in respect to class action lawsuits. The plaintiff's lawyer will examine all possible wage-related benefits in order to raise the hourly rate. Each increase can boost the amount of overtime pay the employee may be owed.

Many class action plaintiffs attorneys will have a list of the different types of remuneration or benefits an employee received from the employer. The attorney will go item by item, deciding which can be used and which cannot in calculating the regular hourly rate. At the end, an employee's attorney can potentially argue to a federal judge that the overtime rate should have been $20 an hour when the client received $15 an hour.

To reduce the risk of litigation, human resources and payroll accounting departments should study the new rules. They should then make changes to policies and systems to meet legal requirements and avoid errors in wage calculations. This calculation becomes crucial in class action lawsuits for overtime wages, for example, with misclassified workers.

Employer contributions to benefit plans in order to be excludable must have a primary purpose to provide systematically for the payment of benefits to employees on account of death, disability, advanced age, retirement, illness, medical expenses, hospitalization; and it must be made pursuant to a specific plan or program that is communicated to the employees.

The new Labor Department rules do not dictate the dollar amounts. For a bonus to be discretionary and excludable, the employer retains the sole discretion as to the amount of the bonus and whether the payment is awarded; it is without prior promise or agreement.

Employees do not need to be notified of the rule changes. Managers should be tutored on the changes and the importance of adhering to standards. They will prefer being educated now to being deposed in wage dispute tomorrow.

Miriam Brooks is an attorney in the Fort Lauderdale office of Kelley Kronenberg, where she handles matters related to employment and labor law. She may be reached at 954-370-9970 or [email protected].