Ninth Circuit ruling may change pay calculations
June 23, 2016
Cash compensation paid in-lieu-of benefits does count toward overtime calculations according to a recently released Ninth Circuit Court of Appeals opinion. The issue comes from the City of San Gabriel where some public safety employees received cash in-lieu-of benefits compensation; employees were required to spend a certain amount of the flexible benefits to purchase coverage, but could choose to abstain from using all of it if they had coverage from an alternative source like a spouse.
In such a case, the employee would receive a cash payment for the remainder of the funds. The City did not include these benefits when calculating the regular rate of pay, which factored into calculations regarding overtime and thus decreased overtime pay. The court concluded that “the City’s payment of unused benefits must be included in the regular rate of pay and thus in the calculation of the overtime rate.” Additionally, the court concluded that the City’s mistake was willful and that the City had not attempted to comply with FLSA in good faith, resulting in liquidated damages and a three-year statute of limitation.
Counties will want to review their methods of calculating regular rate of pay to ensure compliance with this ruling.