Court: RSUs Can Be Excluded from FLSA Overtime Pay

A federal court has ruled that employers can exclude the value of restricted stock units (RSUs) from an employee's "regular rate of pay" for purposes of calculating overtime under the Fair Labor Standards Act (FLSA). This issue is a significant source of concern and potential liability for companies that use equity to compensate a broad base of employees.

Sophisticated counsel and clients care because the FLSA requires overtime to be paid at 1.5 times the regular rate, which must include all remuneration for employment, with limited exceptions. The inclusion of RSU value can substantially increase overtime costs and create administrative complexity in tracking and calculation. An incorrect calculation can expose employers to significant liability in class-action lawsuits for back pay, liquidated damages, and attorneys' fees.

This ruling provides employers, particularly in the technology sector, with a defensible basis for structuring their compensation plans to exclude RSUs from overtime calculations. Counsel should analyze the decision to assess its applicability to their clients' specific RSU plans and advise on potential adjustments to payroll practices and risk mitigation strategies. The precedential value will depend on the specific court that issued the ruling.