Ninth Circuit: Cash-in-Lieu-of-Benefits Payments Factor Into Regular Rate

The Ninth Circuit Court of Appeals recently held that cash-in-lieu-of-benefits payments are compensation that should be included in the calculation of an employee’s regular rate for overtime purposes. Flores v. City of San Gabriel (9th Cir. 2016).

Under a flexible benefit plan, the city provided funds for police officers to purchase medical, vision, and dental benefits. They were required to use the funds to purchase dental and vision insurance, but could receive any remaining funds as compensation upon providing proof they had medical coverage from another source, such as a spouse’s plan. The city did not include the value of the cash payment when calculating an employee’s regular rate of pay for overtime.

The Ninth Circuit held that cash-in-lieu-of-benefits payments are compensation that must be included in the regular rate of pay calculation. Accordingly, employers in the Ninth Circuit, which comprises Washington, California, Oregon, Montana, Idaho, Nevada, and Arizona should review their pay practices and ensure they include cash-in-lieu-of-benefits payments when calculating non-exempt employees’ regular rate of pay.