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Under the federal Fair Labor Standards Act (FLSA), most employees in the country must be paid overtime for all hours worked over 40 during a week. An employee’s overtime rate must be based on their total earnings, which can include certain forms of non-wage compensation that are common in some industries. Restricted stock units, or RSUs, are one example of this. This type of payment can complicate overtime calculation and, when not included, has formed the basis of legal action against major employers. If you receive RSUs or other stock options as compensation, is your overtime being correctly calculated? We can review your rights and options today.

What Are RSUs?

Restricted stock units are shares in a company that are sometimes awarded to employees as part of their compensation. RSUs are typically granted to an employee over a period of time, and they vest (become the property of the employee) once certain conditions are met. For instance, a vesting schedule may require that an employee remains with the company for a certain period of time before the stocks become theirs.

RSUs are intended to give employees an equity share in their employer’s company. However, until they vest, RSUs do not have tangible value. Once they become vested, RSUs are considered income for the employee.

Tech, telecommunications, and banking companies are some top examples of employers that regularly offer their employees RSUs as compensation. These are a few examples of specific businesses that give their workers RSUs:

  • Apple
  • Google
  • Facebook
  • Tesla
  • Zoom
  • Uber
  • Verizon
  • T-Mobile
  • Bank of America
  • Microsoft
  • LinkedIn
  • Starbucks

General Overtime Rules

The FLSA, as well as state wage and hour laws, require that employees be paid overtime for all hours worked in excess of 40 during a work week. Overtime is also known as time and a half because the employer has to pay 1.5 times the employee’s regular rate of pay for those hours. Employers must typically include all compensation when determining the regular rate of pay.

RSUs and Overtime

RSUs present complications when they are used as a form of employee compensation. To appreciate why, it’s important to know that some types of compensation do not have to be included in an employee’s overtime pay. Under federal regulations, when an employer calculates an employee’s regular hourly pay rate (which therefore affects the overtime rate), not all forms of compensation have to be counted. Employers are allowed to exclude:

  • Gifts and payments in the nature of gifts on special occasions
  • Payments for occasional periods when no work is performed because of vacation, holidays, or illness
  • Discretionary bonuses
  • Profit-sharing plans
  • Employer contributions to benefit plans
  • Premium payments for non-FLSA overtime
  • Stock options, stock appreciation rights, or employee stock purchase programs

The last item is particularly relevant. The DOL was specifically asked to include RSUs along with stock options and the like but ultimately concluded that RSUs are beyond the scope of the current federal rules. In other words, while employers are specifically permitted to exclude the above forms of employee compensation from overtime calculations, RSUs are not on the list and the regulations do not authorize employers to exclude them.

Litigation Over RSUs and Overtime

This “silence” from the DOL has raised the question of whether RSUs must be included in calculating employee overtime. Our position, and one that we will advocate on behalf of workers, is that RSUs are a form of non-discretionary incentive payments that are distinct from stock options and the other items listed above. As such, they should be included in the regular rate of pay on which overtime is based.

Recent litigation supports this view. For instance, Google has agreed to pay over $8 million for failing to include vested RSUs (along with sign-on bonuses) when calculating employees’ overtime pay. The settlement, approved by the federal district court for the Northern District of California, will affect over 6,500 Google employees throughout the United States.

A similar lawsuit is pending against Apple. The complaint argues that when determining its employees’ rate of overtime pay, the technology company failed to include the value of vested RSUs. By excluding the stock, the complaint alleges that Apple was able to pay a lower overtime wage than what was required by law. It is believed that many employees across the country may have been impacted by Apple’s exclusion of RSUs from overtime calculation.

Other Forms of Compensation That Should Be Included in Overtime

The regular rate of pay (and therefore overtime pay) must include all forms of employee remuneration except for items like those above which are specifically excluded. It is important to note that the statutory exceptions are strictly defined and rigidly enforced. For example, while discretionary bonuses can be excluded, non-discretionary bonuses cannot. These are bonuses which are:

  • Based on a preset formula, e.g. individual or group production bonuses
  • Awarded for accuracy and quality of work performed
  • Announced to employees ahead of time to encourage them to work harder or better
  • Attendance bonuses
  • Safety bonuses (paid when a number of days are worked without safety problems)

Certain “wage augments” must also be included in an employee’s regular and overtime pay rates. Some examples are longevity payments and shift differentials. In essence, any form of payment that is designed to compensate employees for their work must typically be included in these rates.

Finally, some employers make certain non-cash payments to employees in the form of goods or facilities. In these situations, the reasonable cost to the employer or the fair value of such goods or facilities must be included in the regular (and therefore overtime) rate.

We Make Sure Employees Receive the Pay They Deserve

If you are paid non-traditional forms of compensation such as RSUs, The Lore Law Firm wants to make sure those payments are fairly included in your overtime calculation. We can also handle other overtime and minimum wage issues you may have. Our goal is to ensure that employees receive the wages to which the law entitles them. Have us take a look at your situation by filling out our free and confidential online client intake form.