RSUs Could Reduce Overtime Pay

Summary#

The VEST Act would amend the Fair Labor Standards Act of 1938 (FLSA), the federal law that includes overtime rules. It would add restricted stock unit (RSU) programs to an existing exception for certain employer equity awards when calculating the regular rate used for overtime. Its stated goal is to clarify that RSUs qualify for that exception; the bill is introduced and is not law.

  • Employers could exclude income or value from qualifying RSUs when calculating an employee’s regular rate for overtime.
  • The bill also changes a related reference from “exercise” to “exercise or acceptance.”
  • The change would start 90 days after enactment.
  • Employers would receive specified protection from liability for some past and transition-period RSU awards, including awards under certain existing programs or collective bargaining agreements.

What it means for you#

  • Workers: The bill would not require employers to offer RSUs or change the overtime rate itself. It would expressly let employers leave qualifying RSU income or value out of the regular-rate calculation. If that income would otherwise have been counted, the change could mean less overtime pay.
  • Employers: Employers could use the RSU exception subject to the FLSA’s existing terms. The bill would also shield employers from liability for certain failures to include RSU value in the regular rate: for awards obtained before the change takes effect; for some awards obtained during the following 12 months under programs that already existed and require shareholder approval to change; and for programs under collective bargaining agreements in effect when the change takes effect.
  • Workers and employers: The bill does not set a process for applying for the exception, reviewing awards, or appealing decisions.

Money#

No cost estimate is provided in the available material.

  • The bill does not appropriate money or set a new tax, fee, or fine.
  • It could affect overtime pay and employer costs, but the materials do not estimate the amount or number of workers affected.

What is unclear#

  • The bill does not define “restricted stock unit program.”
  • The full text of the FLSA provision being amended was not supplied, so the existing conditions and limits on the equity exception could not be checked against current law.
  • The bill does not explain how the change would apply to different RSU arrangements or how employers would determine which awards qualify.
  • It is unclear how often RSU value is currently included in overtime calculations or how many workers’ pay would change.

Case for#

  • The bill appears intended to clarify whether RSUs fit an existing exception for employer equity awards.
  • A possible argument for the bill is that treating RSUs like other listed forms of employer equity would make the rule clearer for employers and workers.
  • The bill’s findings say equity awards can let hourly and other workers share in a company’s future success. The bill’s stated approach is consistent with encouraging those opportunities.

Case against#

  • The bill would let employers exclude qualifying RSU value from the overtime calculation. If that value would otherwise count, affected workers could receive less overtime pay.
  • The bill does not require employers to offer RSUs, so the exception could apply without workers gaining access to equity.
  • The bill does not define RSU programs or explain how eligibility would be decided, leaving important details unresolved.