I am always interested in cases that analyze what payments should and should not be included in the regular rate. These issues are important to employers because their overtime liability/exposure can be dramatically inflated if they fail to include certain payments and a lawsuit results. In an interesting case, firefighters and policemen could opt out of their employer/union -provided health insurance coverage and received “opt-out” fees. The employer did not include these fees when it calculated the regular rate and the employees sued. The Ninth Circuit concluded this did not violate the FLSA. The case is entitled Sanders v. County of Ventura and issued from the Ninth Circuit Court of Appeals.
The lower court sided with the County and the appellate court affirmed, stating that “when an employer, as here, decides to allow employees to retain some portion of an unused health insurance credit, it can permissibly structure the program to prop up the employee health plans without treating the full amount of the health credit as part of the FLSA regular rate of pay.”
The employees received a flexible benefit allowance, to be used (if they wished) towards health insurance premiums. If an employee opted out, they would nevertheless receive this benefit, but they were also entitled to a “flex credit” each time they were paid. Some of the credit was deducted to fund the health plans; the flex credit was reflected on pay stubs as “earnings; the opt-out fee was labeled a “before tax deduction” and the balance after the deduction was paid to workers in cash. The County did not include the amount attributable to the opt-out fee in regular rate calculations for overtime. The district court found the fee was properly excluded under 29 CFR 207(e)(4), as a “contribution irrevocably made by an employer to a trustee or third person pursuant to a bona fide plan for providing health insurance.”
The plaintiffs relied on precedent in the Ninth Circuit where a court distinguished between cash in-lieu payments, which were includible in the regular rate and contributions to benefit plans which might be includible. That depended on whether the plan was a “bona fide plan” as defined under the federal law, i.e., 29 USC 207(e)(4). The plaintiffs claimed that the opt-out fee was the same as a cash-in-lieu payment; the Ninth Circuit rejected that argument. The Court ruled that the opt-out fee was designed to fund the health plan and was not the equivalent of a cash payment to the employees.
This is an unusual case and shows how fine the lines are between some payments that are includible in the regular rate and payments which are not. The possible exposure though, is significant. What does the employer do, before it embarks on including certain payments or not—my advice is seek a written Opinion Letter from a lawyer conversant in this area, so you get the best, reasoned advice on what to do. (I have done this dozens of times for clients) You can also request an Opinion Letter from the USDOL but that may take months (or more).
Just don’t fly blind…