Takeaway: Employees who opt out of sponsored health plans and pay an opt-out fee for doing so are not entitled to have this fee treated as part of their “regular rate” of pay for determining overtime compensation.

Employees who opted out of their union and employer-sponsored health plans received a credit. A portion of the credit was deducted to fund insurance from which plaintiffs had opted out. The plaintiffs argued that this opt-out fee should be treated as part of their “regular rate” of pay for calculating overtime pay under the Fair Labor Standards Act (FLSA). An appeals court, however, ruled that the fees are not part of the employees’ regular rate of pay because they are contributions to health insurance, even if the insurance is not specifically for the employees in question.

The plaintiffs are county employees who largely are members of two unions. The county provides employees a “flex credit” to purchase health benefits on a pretax basis. If the premium for their selected health insurance is more than the flex credit, the balance owed is deducted from the employee’s pretax earnings. If the premium is less, the remainder is paid to the employee in cash as taxable earnings.

Under the flexible benefits program, employees receive a cash payment for the balance of the flex credit after the opt-out fee is deducted. The opt-out fee is either directed to the unions to fund the employee health plans, or, for nonunion employees, to the third parties administering the...

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