In a recent case, Flores v. City of San Gabriel, the Ninth Circuit held that an employer was liable for underpaid overtime wages that arose from the employer’s failure to include cash-in-lieu of benefits payments when they calculated the regular rate of pay for overtime purposes.

The City provided an alternative benefits plan that enabled employees to tap into a pool of money that was specifically allocated for medical and dental benefits. If the employee declined to use the funds, the employee would receive the unused portion of the benefits as a cash payment – which was added to their paycheck each month. The City labeled its plan as “benefits” that were excluded from regular rate of pay for overtime calculations.

The Ninth Circuit held that cash-in-lieu benefits have to be included in the regular rate because the court found that these benefits were “compensation for work,” not benefits. Any compensation for work must be paid at the regular rate.

What This Means For Employers

Employers should be cautious when drafting their benefits plan. This case serves as a reminder that any benefits that are considered compensation for work must be paid out at the regular rate. In addition, the court noted that any payment of benefit premiums should be made to a third party, such as a trustee or benefits trust, and not directly to the employees.

If you have any questions about your obligations as an employer, please contact us at info@mitzelgroup.com or reach out to your Mitzel Group, LLP attorney directly.