The U.S. Department of Labor (DoL) got tripped up by history when it was deciding whether stock options should be included in the calculation of overtime pay.
Earlier this year, the department issued a policy letter stating that earnings from the exercise of employee stock options must be included in the calculation of overtime under the Fair Labor Standards Act, a law passed in 1938, when workers were lucky to have a job, never mind equity-based compensation.
A bill, sponsored by more than 30 senators to essentially reverse the department’s action, cleared the U.S. Senate and House and sat on the President’s desk as CFO went to press. “The department’s letter would be voided by the new law if it is passed,” says DoL spokes-man Howard Waddell.
That doesn’t faze the agency, which worked with Senate staff on the bill. “We recommended that the law change, and we worked with the Hill to draft language to amend the Fair Labor Standards Act,” Waddell notes, adding that the original act required the department to include options in its ruling.
The prospect of a reversal is a relief to many executives, who worried about the consequences of the original ruling. “If broad-based plans have to be put into the overtime-pay calculation, it will have a very adverse effect,” contends John Morphy, CFO of Paychex, a $1.2 billion payroll processing company based in Rochester, N.Y., whose 5,500 employees are covered by a broad-based plan.
“To say we have to pay employees more wages because we gave them a broad-based option plan- -that just isn’t going to happen.”