Wage And Hour: Stock Option Legislation Gets Speedy Approval

President Clinton has signed into law new legislation, S. 2323, that excludes stock options from overtime pay. The bill takes effect on August 16, 2000, and is intended to counteract a recent Department of Labor opinion letter stating that stock option profits must be included in a nonexempt worker’s base pay when you calculate their overtime compensation.

The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.

Overtime Pay Not Based On Stock Options

Under the new law, an employee’s regular pay rate, for purposes of figuring overtime premium pay, doesn’t include income from stock options, stock appreciation rights or an employee stock purchase program—if several conditions are met:

1. The stock program’s terms are communicated to an employee when the person starts participating or at the time the right to purchase the stock is granted;

    

2. The employee holds the stock options or stock appreciation rights for at least six months (with a few exceptions) before exercising them;

    

3. The exercise price is at least 85% of the stock’s fair market value at the time the option is granted;

    

4. The exercise of any grant or right is voluntary; and

    

5. If grants or rights are tied to performance, the determination and amount of the award are based on either:

• meeting performance criteria (such as hours of work or productivity) established for any business unit with at least 10 employees or for a facility. Eligibility can be based on length of service or a minimum number of hours worked. Or

• past performance of one or more employees during a specified period, if the determination is in your sole discretion and not based on a prior contract.

No Liability For Past Calculations

You won’t be held liable if in the past you didn’t include income from stock options in an employee’s regular rate of pay when you calculated overtime, as long as:

• the stock grants or rights were obtained before the new law’s effective date; or

   

• they were obtained within 12 months after the effective date, as long as the program existed on the effective date and shareholder approval is required to modify the program to comply with the new law; or

   

• the program is provided under a collective bargaining agreement in effect on the law’s effective date.