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Technically Speaking: FLSA and Stock Option Programs

  • April 15, 2000

To encourage employees to remain with companies in their formative years, start-ups and tech companies often grant stock options to all levels of employees -- from senior executives to administrative assistants. This practice caught the attention of the U.S. Department of Labor, and early this year, the DOL issued an opinion on the application of the federal minimum wage and overtime law to employee stock option programs. In the opinion letter, the DOL stated that an employer must include the value of employee stock options in a nonexempt employee's regular rate of pay when calculating overtime.

The business community responded quickly and heavily criticized the DOL's position. Consequently, a bipartisan group of U.S. Senate and House of Representative members introduced the "Worker Economic Opportunity Act" to exclude the value of employee stock option from regular rates of pay from overtime calculations. The bill also provides retroactive protection from overtime liability for employers that, at the time of enactment, had outstanding stock option plans qualifying for the new exclusion and would shield employers from liability for one year from the proposed law's effective date.

On May 18, 2000, President Clinton signed the bill after it passed both the Senate and the House by unanimous votes.

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