Yesterday, the 9th Circuit Court of Appeals issued a significant ruling in Flores v. City of San Gabriel.  Determining what it described as both an “issue of first impression” and a “close call,” the Court concluded that when an employer gives cash payments to police officers who waive medical coverage, those payments must be INCLUDED by the employer in calculating the “regular rate of pay” for purposes of FLSA overtime.

FLSA regular rate issues are complex and many employers calculate the overtime rate improperly. The basic rule is that any cash remuneration received by an employee must be factored into the overtime rate. So, for example, if an employee’s base rate of pay is $25 per hour, but she also receives $5 per hour in premiums, her overtime rate for FLSA purposes is 1.5 x $30 per hour, or $45 (and not 1.5 times $25 per hour, or $37.50). The 9th Circuit concluded that cash in lieu of medical coverage must be included, too.

The Court rejected the employer’s good faith defense for its failure to include the in lieu payments. The employer had done little to determine whether it should be including cash in lieu payments. So the Court ordered three years of back pay for a willful violation, rather than the minimum of two. It also awarded liquidated damages to the plaintiffs.

Regular rate issues are complicated. If you have any questions, please contact Gregg Adam at gregg@majlabor.com