Court: Cash in Lieu of Benefits Is Part of Overtime Calculation

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By Caitlin Reilly

An appeals court ruling that said a city should have taken into account cash paid instead of benefits when calculating overtime remained in place after the Supreme Court declined to review the case.

The Fair Labor Standards Act's exclusion of specific benefit plans and payments not tied to hours worked from overtime pay calculations did not apply to cash payments made in lieu of health benefits, the Ninth Circuit Court of Appeals said in 2016.

San Gabriel, Calif., gave police officers money to but health, vision, and dental benefits under a flexible benefits plan. Those who had coverage elsewhere could choose to receive the unused part of the stipend as a cash payment added to their paychecks, the appeals court said.

From 2009 to 2012, 42 to 47 percent of contributions to health plans made by the city were paid as cash directly to police officers, the court said. The annual cash payments ranged from $1 million to $1.2 million, the court said. When calculating overtime, the city did not include the cash payments in determining regular rate of pay, the court said.

The FLSA excludes some payments not tied to hours worked from the calculation of regular rate of pay for overtime. The city claimed its health benefit payments were included under that exclusion.

Equating the health benefit payments to payments like travel expense reimbursement and vacation pay was incorrect, the court said. The cash payments made in lieu of benefits should have been treated like other compensation not tied to hours worked, like bonuses, the court said. The cash payments were not included in the FLSA exclusion for employer payments made to a third-party to provide health, old-age, retirement, life, or accident insurance.

To qualify for the exclusion, employees may not have the option to receive any part of the employer's contribution as cash, the court said ( City of San Gabriel v. Flores, U.S., No. 16-911, denied review 5/15/17 ).

San Gabriel told Bloomberg BNA that it was weighing it options, including a petition for rehearing by the Ninth Circuit.

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