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| Issue: |
As part of your company’s effort to instill a feeling of employee ownership in its products and its future, plans are in motion to offer a stock purchase program to both exempt and nonexempt personnel. Must stock purchased by nonexempt employees under the program be included in their regular rate for overtime-pay purposes? What about stock grants or stock options awarded for meeting production goals or developing innovative solutions? |
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Answer: |
The value or income derived from stock received by employees under a bona fide stock purchase program generally does not have to be included in regular-rate calculations for overtime-pay purposes. However, employee participation must be voluntary, and the terms of the program must be clearly explained when the employee begins to participate or receives the stock.
Additional standards for exclusion apply when stock grants, stock options or stock appreciation rights are based on future or past performance.
Grants may be made based on the future performance of a unit of 10 or more employees, or of an entire facility, provided that performance criteria have been established in advance. Employers may base determinations on length of service or minimum hours or days of work.
Grants may be awarded to individuals or groups of employees based on past performance, provided that the employer's determination is entirely discretionary and not according to any prior contract. There is some ambiguity as to whether this is an exception to the "program" requirement or if there must be at least be some custom or practice of making discretionary awards. However, a separate exclusion for discretionary bonuses also may come into play.
Stock options and appreciation rights have additional limitations regarding timing and price. They generally cannot be exercisable for at least six months after they are granted, although they may become exercisable at time of death, disability, retirement or change in corporate ownership. Also, the exercise price must be at least 85 percent of the stock's fair market value at the time of the grant.
The value of the stock may not be offset against liability for overtime compensation.
Source: CCH Wage & Hour Compliance Guide. |
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