Cafeteria Cash-out and FLSA Overtime Calculation

[Guest wwest]

Any comments on the following quote from Kiplinger? Does anyone have the court case cite?

"Figuring overtime pay may get more complex for payroll departments. A district court has ruled any cashout option an employer offers workers under cafeteria benefit plans must be included in figuring overtime pay. Includes the VALUE of a cashout, even if the employee doesn't take it. Court ruling will put a damper on cashout options in such plans, especially if the decision is backed by Labor Dep't and upheld on appeal."

[Guest jreddi]

I don't have the court case cite, but I am told that there is a potential alleviation to this problem buried in the pending bill S.625. This bill deal primarily with bankruptcy and I will be dipped and deep fried if I can find reference to overtime calculation in it. But I am told it is in there--more research! We offer stock options to both exempt and non-exempt ees, so this is of particular interest to us.

[Guest wwest]

Ohh. Perhaps I misunderstood the meaning of "cash out." I thought it was used in reference to a cafeteria plan cash out.

[Guest ronc]

The case referred in Kiplinger is Madison v. Resources for Human Development Inc. This opinion was rendered in the Eastern District Federal Court January 8, 1999. You can find it at:

www.paed.uscourts.gov/opinions/99D0019P.HTM

The case involved a cafeteria plan whereby the employer deposited an amount equal to 7% of salary + $100 for each employee to use for benefits or to receive in cash.

The ruling provides for some interesting commentary on the inconsistencies of various tax laws (surprise, surprise). In this case, FLSA and Section 125.

The resulting ruling stated that the cash received in lieu of benefits would be considered income and must be included in the calculation for determining overtime.

Is anyone out there still doing these full cafeteria type plans? I would be interested in your comments on this issue and your overall experience with your plan.

[Guest wwest]

I did see that case. However, wasn't the holding in that case dependent upon the fact that the employer did not restrict the cash out option? In dictum, the court mentioned that the cash out option in a cafeteria plan may not be used in the FLSA calculation if some restrictions were placed on the cash out. For instance, the cash out for a health coverage would be okay if the employee's spouse already had full coverage. What do you think?