Thursday, June 16, 2016

Payments Made to Employees in Lieu of Health Benefits Must be Included in the Regular Rate for Overtime Purposes under the FLSA

Yet another reason to eliminate your cash in lieu plan.  This is from the California Public Agency Labor & Employment Blog:
The Ninth Circuit’s Holding On Inclusion of Cash In Lieu Benefits in the Regular Rate 
The primary issue on appeal was whether the City’s cash in lieu payments were properly excluded from the City’s regular rate. In its June 2, 2016 opinion, the Ninth Circuit held that cash payments made to employees in lieu of health benefits must be included in the hourly “regular rate” used to compensate employees for overtime hours worked. The City argued that the cash in lieu payments were not payments made as compensation for hours of employment and were not tied to the amount of work performed for the employer, and therefore were excludable from the regular rate of pay as are payments for leave used and expenses. The Ninth Circuit disagreed, finding the payments were “compensation for work” even if the payments were not specifically tied to time worked for the employer. 
The Ninth Circuit also held that the cash in lieu payments could not be excluded from the regular rate as payments made irrevocably to a third party pursuant to a bona fide benefit plan for health insurance, retirement, or similar benefits pursuant to section 207(e)(4) of the FLSA since those payments were paid out directly to employees. Thus, those payments must be added into the employee’s regular rate of pay for the time period that they cover for purposes of determining the employee’s FLSA overtime rate.