The Impact of “Cash-in-Lieu of Benefits” Payments to Employees on Overtime Compensation Calculations


In Flores v. City of San Gabriel, (1) the Ninth Circuit Court of Appeals considered an issue of first impression: whether “cash-in-lieu of benefits” payments made directly to employees under a flexible benefits plan must be included in the regular rate of pay for overtime compensation. The court concluded that such payments do not qualify for exclusion from the regular rate under the Fair Labor Standards Act (2)(FLSA). Therefore, non-exempt employees who receive such payments may be entitled to additional overtime pay. Because California law generally follows the FLSA with regard to the forms of pay that may be included in the regular rate, (3 )and federal law sets the “floor,” this decision may have significant consequences for California employers.