This is the fourth installment in a six-part series from FirefighterOvertime.org on the regular rate.
Proper calculation of the regular rate is critical. All FLSA overtime must be at least time and one-half of the regular rate. The regular rate has been referred to as the “linchpin” of the FLSA. Not only is calculating the regular rate important, it can be difficult, especially for firefighters. Calculating the proper regular rate is frequently one of the most challenging administrative tasks for any fire department leader. In fact, the U.S. Supreme Court has written that calculating the regular rate can even be “perplexing” at times.
Properly calculating a firefighter’s regular rate may seem overwhelming at first, but with the proper knowledge, anybody can do it. Failing to include all renumeration in the regular rate is the leading cause of FLSA lawsuits in the fire service today. In this six-part series, we will explore which types of remuneration can be rightfully excluded from the regular rate.
Important Point to Remember
The regular rate must include “all remuneration for employment paid to, or on behalf of, the employee,” with only a few narrow exceptions. That means all the money an employee receives from his or her employer must be included in the regular rate unless it fits into one of these six narrow exceptions.
Regular Rate Exception #4 – Retirement, Healthcare, and Insurance Exception
“[C]ontributions 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” do not need to be included in the regular rate. This regular rate exception applies to employer contributions for employee retirement, health care, life insurance or “other similar benefits.” In order to meet this regular rate exception, the employer’s contribution must be made irrevocably “to a trustee or third person” and the contribution must be made for the purpose of providing “old-age, retirement, life, accident, or health insurance or similar benefits for employees.”
While this regular rate exception seems rather straightforward, a fair amount of FLSA litigation has emerged in the past several years regarding the regular rate and contributions for medical benefits. Many employers, including police and fire departments, offer cash payments to employees in lieu of receiving employer sponsored medical benefits. Courts have found these cash payments cannot be excluded from the regular rate under the retirement, healthcare, or insurance exception. Remember, in order to qualify for this regular rate exception, the employer must be making the contribution to a trustee or third party for the purpose of providing benefits.
Stay tuned for the next installment in the six-part series on the regular rate and firefighters: Regular Rate Exclusion #5: Premium Pay Exception.