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June 14, 2024

Overtime Pay Lawsuit: Cash Payments for Opting Out of Health Insurance Counts for Overtime

Court finds cash payments for opting out of health insurance must be included in overtime, thereby increasing the rate at which overtime is paid.
Home » News » Overtime Pay Lawsuit: Cash Payments for Opting Out of Health Insurance Counts for Overtime

McGillivary Steele Elkin LLP represents police officers from the City of Cortland, New York, who allege that the City is violating the Fair Labor Standards Act by not paying them overtime at the correct rate. Under the Fair Labor Standards Act, all forms of payment must be included in the rate when calculating overtime pay unless they meet certain limited exemptions. One issue in this case concerns cash payments that the City pays directly to police officers who choose to opt out of the employer-sponsored health insurance plan. The City filed a motion to dismiss, arguing that these payments do not need to be included in overtime pay.

On May 31, 2024, the Court denied the Defendant’s motion to dismiss, holding that cash payments made to employees who opt out of an employer-sponsored health insurance must be included in the regular rate of pay for overtime pay calculation. In coming to its conclusion, the Court analyzed two exemptions under the FLSA.

First, the Court analyzed whether the payments fall under the exemption in 29 U.S.C. § 207(e)(2), which allows “other similar payments to an employee which are not made as compensation for his hours of employment” to be excluded from the regular rate. The Court found that this category does not necessarily require a direct correlation between the hours worked and the payment. Because the cash payments for opting out of health insurance are related to compensation for work performed, they must be included in the regular rate.

The Court also analyzed the exemption in 29 U.S.C. § 207(e)(4) which provides that the regular rate does not include contributions made by an employer to a trustee or third person pursuant to a plan for providing for health insurance. Here, the Court held that because the cash payments are made directly to the employees, and not to a trustee or third person, this exemption did not apply.

The issue of whether cash payments for opting out of health insurance must be included in the regular rate of pay for purposes of calculating the correct overtime rate had not previously been decided in the Second Circuit. In ruling that such payments must be included in the regular rate, the Court followed the Ninth Circuit’s ruling in Flores v. City of San Gabriel.

If you believe that you are not being paid overtime correctly, please contact us at info@mselaborlaw.com. 

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