Fact Sheet #56: Stock Options under the Fair Labor Standards Act (FLSA)
This fact sheet provides general information on the treatment of stock options based upon the Worker Economic Opportunity Act passed by Congress in 2000 (P.L. 106-202). This law amended Sections 7(e) and 7(h)) of the Fair Labor Standards Act (FLSA).
Along with the statute, Congress included a detailed statement of legislative intent in the Congressional Record (146 Cong. Rec. S2576-81 (April 12, 2000)). After reviewing the clear statutory language and thorough statement of legislative intent, the Department has determined that rulemaking is not necessary and refers the reader to the statute and Congressional Record for additional information.
The FLSA requires that most employees in the United States be paid at least the Federal minimum wage for all hours worked and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek. The purpose of the stock options provision is to allow nonexempt employees (employees eligible for overtime pay) to share in workplace benefits that involve their employer’s stock or similar equity-based benefits by excluding such benefits from an employee’s regular rate of pay.
Under the law, an employer can provide its employees an opportunity to participate in a stock option, stock appreciation right or a bona fide employee stock purchase program. Further, an employer can exclude from the regular rate of pay when computing “time-and-a-half” overtime pay any value or income received by the employees as a result of the grants or rights provided pursuant to the program, provided the program meets the following criteria:
Exception: An option or right may be exercisable for stock or cash in the event the employee dies, becomes disabled, or retires, or if there is a change in corporate ownership.
The Department of Labor provides this information to enhance public access to information on its programs. This publication is for general information and is not to be considered in the same light as official statements of position contained in the regulations.
Along with the statute, Congress included a detailed statement of legislative intent in the Congressional Record (146 Cong. Rec. S2576-81 (April 12, 2000)). After reviewing the clear statutory language and thorough statement of legislative intent, the Department has determined that rulemaking is not necessary and refers the reader to the statute and Congressional Record.
For more information regarding the FLSA, visit the Wage and Hour Division’s web site at www.wagehour.dol.gov or call our toll-free help line, available from 8 a.m. to 5 p.m. in your time zone, at 1-866-4US-WAGE (1-866-487-9243).
Copies of Wage and Hour publications also may be obtained from any office of the Wage and Hour Division. To locate the nearest Wage and Hour Division office, telephone the toll-free help line or visit our web site for a complete listing of offices.
When the state laws differ from the federal FLSA, an employer must comply with the standard most protective to employees. Links to your state labor department can be found at www.dol.gov/esa/contacts/state_of.htm.