Does Cash in Lieu of Benefits Compensation Affect Your Overtime Pay Rate?
Nick Ferraro | June 17, 2022 | Overtime
Cash in lieu of benefits compensation impacts the overtime pay rate for employees. If you believe your employer is not paying the correct overtime rate, you should speak with a San Diego wage and hours lawyer as soon as possible.
What is Cash in Lieu of Benefits?
Employees may qualify for a cash-out option for their health insurance benefits. Employees can waive their employer’s coverage and enroll in another health insurance plan, such as their parent’s or spouse’s plan.
In exchange for the waiver of benefits, the employer may pay an incentive to the employee in the form of a cash payment. The cash payment is paid through payroll.
For employers, cash in lieu of benefits can reduce overall health insurance costs. The option benefits employees because it provides additional compensation for those with alternatives for health care coverage.
How Does Cash in Lieu of Benefits Impact Overtime Rates?
California law states that some employees are entitled to overtime pay when they work more than a specific number of hours. The overtime pay rate is one-and-a-half times the employee’s regular pay rate.
An employee receives overtime pay when they work:
- More than eight hours a day
- More than 40 hours a week
Affected employees who work more than 12 hours in a single workday must be paid double time. They also receive double their pay rate if they work more than eight hours on a seventh consecutive day in a workweek.
Cash in lieu of benefits payments must be included in calculating an employee’s regular rate of pay. As a result, the payments directly impact the employee’s overtime rate because they increase the regular pay rate. As a person’s regular rate of pay increases, their overtime rate increases.
There are exceptions to the general overtime rules. If you have questions, you should talk with a San Diego employment law attorney.
A California Case Directly Impacts Cash in Lieu of Benefits and Overtime Calculations
A United States Court of Appeals decision from the Ninth Circuit confirmed that cash in lieu of benefits payments must be included in the calculation of regular pay. The case was an appeal from the United States District Court for the Central District of California.
In the case of Flores v. City of San Gabriel, police officers for the City of San Gabriel sued the City over money the City provided to employees to purchase health, vision, and dental insurance coverage.
The City required employees to use a portion of the money to purchase vision and dental coverage. If the employee had health insurance coverage from another source, they could receive the remaining money as cash in lieu of benefits payments.
The City treated the cash in lieu of benefits payments as an excluded benefit. In other words, they did not include the payments as part of the employee’s regular pay rate.
Police officers sued the City, alleging it violated the Fair Labor Standards Act (FLSA) by failing to include the money as regular pay. The result was an inaccurate overtime rate.
The Ninth Circuit court found that the cash in lieu of benefits payments should have been included in the calculation of an employee’s regular rate of pay. As a result, the police officers were entitled to unpaid overtime pay because of the miscalculation.
Filing Claims for Unpaid Overtime Pay in San Diego
Most employees are entitled to overtime pay. However, California’s wage and hour laws exempt some employees from overtime pay. Also, independent contractors and employees working under an alternative workweek schedule are not entitled to overtime pay.
Employees can sue their employer for failing to pay overtime wages. You might also consider filing a class-action lawsuit against your employer for violating wage laws if multiple employees are impacted.
However, you might be able to resolve your claim without a lawsuit. For example, a San Diego employment lawyer can help you file an unpaid wage claim with the Labor Commissioner’s Office or the Division of Labor Standards Enforcement.
Your attorney might be able to resolve the matter with your employer. A letter from your lawyer explaining the error might be sufficient to correct the problem. Unfortunately, some employers are unaware that they are violating labor laws if they omit cash in lieu of benefits payments in the calculation of regular pay.
Do Not Wait Too Long to Pursue a Wage Claim
California limits the time employees can file wage claims for unpaid overtime wages. Most wage and hour claims are subject to California’s three-year statute of limitations. However, there could be exceptions, so it is always best to seek legal advice as soon as possible.