Stop Punishing Employers Who Want to Help Employees With Free Gas, Meals, or Child Care

September 15, 2022

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Employers are struggling to fill more than 11 million open jobs. Employees struggle to pay for childcare, gas, and even food. And then there’s the struggle to repay those student loans for many Americans.

I have a solution: Employers could offer benefits – voluntary, not mandatory – such as free or subsidized child care, elder care, public transport, gas, meals, reimbursement of student loans or tuition fees.

Employers will attract new employees to the job market. Employees receive help to overcome challenges related to high gas prices, high inflation and unpaid student loans. A win-win.

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But there is a huge roadblock called the Fair Labor Standards Act (and most state laws) that currently requires employers to pay additional overtime on the value of these employee benefits.

Yes, it’s true. Most people think of overtime pay as time and a half of an employee’s hourly rate. It’s not. Overtime is calculated as 1.5 times an employee’s “regular rate of pay”. “Standard rate” is defined in the RSA as “all remuneration for employment” unless specifically excluded under section 7(e) of the Act. What this means in real English is 1.5 times all things of value – hourly wages, salary, commissions, bonuses, anything – that an employer gives its employees for their work.

Payments for health, accident and life insurance are excluded from the 1.5 calculation under the law, as are pension benefits. But that’s all; most other employee benefits trigger the overtime requirement. The definition of the regular rate and this list of excluded benefits were added to the FLSA in 1949. It’s time for an update.

Today’s employee wants, needs and demands more than just an hourly wage. Health insurance and vacation pay are important and do not count towards overtime. But this old, outdated list of excluded benefits prevents employers from giving more benefits to employees.

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Few employers offer childcare, student loan repayment or transportation allowances. The threat of litigation and additional overtime obligations are stifling innovation in employee benefits. A Montana employer has lost a lawsuit for failing to pay overtime when it offered its employees public transportation subsidies. A California employer has settled an overtime lawsuit for the sin of student loan repayment.

The federal government recognizes the value of these benefits and provides them to its own employees. The Department of Labor, for example, provides its own employees with child care subsidies or on-site child care, dependent benefits, tuition reimbursement, fitness centers physical training, subsidies for public transit and a “bicycle travel reimbursement grant”.

But, of course, the federal government doesn’t have to pay overtime for these benefits like private employers do. No, the federal government does not use the “regular rate” formula; overtime for federal employees is limited to 1.5 times their hourly rate.

It is time and already more than time to apply the calculation of overtime for federal employees to private sector employees as well. We need to stop punishing employers who want to offer employees free childcare, free meals, free gas, or free training by allowing the plaintiffs’ bar to sue them for such good deeds.

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The Trump Administration made some progress in dismantling the FLSA’s perverse incentives, in one of the few regulations that were not quickly removed by the new Biden-led Labor Department. The Trump regulations clarified that employers did not have to pay additional overtime on unused sick leave payouts, military leave payouts, the value of wellness programs, property discounts and services provided by the employer and certain signing bonuses.

These regulations, however, did not and could not go far enough because the Department of Labor believed it was limited by the wording of the FLSA itself. Subsidies for public transit, free meals and child care continue to require payment of additional overtime. Whether overtime is due on student loan repayments and other educational benefits remains unclear, depending on the facts and circumstances of each program.

Recently, Representatives Elise Stefanik, RN.Y., Henry Cuellar, D-Texas, and Michelle Steel, R-Calif., introduced a bill to pave the way for employers to provide employees with free or subsidized childcare and elderly care.

FILE – Representative Elise Stefanik, Republican of New York and President of the Republican House Conference, speaks during a press conference at the United States Capitol in Washington, DC, U.S., Thursday, May 20, 2021. (Photographer: Samuel Corum/Bloomberg via Getty Images/Getty Images)

It’s a very short piece of legislation, HR 8388, the Empowering Employer Child Care & Elder Act, which would exclude “payments for child care or dependent care reimbursements” from this definition of the “normal rate” in the FLSA.

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Every Democrat and Republican in the House and Senate should sign up and push through this bipartisan bill quickly.

State Governors and lawmakers should do the same under state law. How could any of our elected officials object to voluntary, employer-funded child care?

With respect, however, I must suggest that HR 8388 does not go far enough. Yes, excluding payments for child and elderly care from the calculation of 1.5 overtime hours is an important first step. But let’s also stop punishing employers who want to help their employees with free gas or free meals or who want to pay off their employees’ student loans.

Incredible benefits offered voluntarily by employers to get people back to work. Voluntary, not mandatory, and not paid for by another taxpayer-funded program.

Come on man, let’s get to work!

Tammy McCutchen served as Administrator of Wages and Hours at the Department of Labor under President George W. Bush.