Page 17 - CPAAC_Fall2016

Flores v. City of San Gabriel: What Your Agency Needs to Know

County Personnel Administrators Association of California (CPAAC) Fall Conference | September 29, 2016
Presented by: Lisa S. Charbonneau

Flores Holdings re: Cash in Lieu
Payments

• ONE: Cash payments made to employees in lieu of
health benefits cannot be excluded from the FLSA
regular rate of pay used to pay FLSA overtime to
non-exempt employees.

• TWO: If the total amount of cash paid in lieu of
health benefits is more than 40% of the benefits
plan payments as a whole, the plan is not “bona
fide”. If a plan is not bona fide, all cash contributions
paid by the employer to the plan, in addition to cash
in lieu, must be included in the regular rate.

(Flores v. City of San Gabriel (9th Cir. 2016) 824 F. 3d 890.)

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What is “Cash In Lieu?” 2

• Many agencies offer cash-back options as part of a “Section
125 Plan,” which requires agencies to provide a taxable
cash-back option for unused plan distributions. The unused
allowance taken in taxable income is referred to here as
“cash in lieu”.
– Sec. 125 plans offer tax-sheltered employer allowances, which
is a benefit to employees.
– CalPERS medical participants may use Sec. 125 plans to
mitigate equal contribution payments required by PEMHCA.

• Agencies also offer cash “opt-out” payments to employees
who are otherwise covered, e.g. under a spouse’s plan.
– Opt-out payments are cash incentives for employees to secure
coverage under other plans.

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Typical Cash In Lieu / Opt Out
Language

The City has implemented a Section 125-qualifying Cafeteria
Plan. The City shall contribute $1300 per month to the Plan
per employee. The City contracts with CalPERS for medical
insurance. The $1300 includes the PEMHCA minimum
contribution. Employees may use their Cafeteria Plan
contributions toward the City’s medical, dental, and vision
programs.
Any unused Cafeteria Plan allowance shall be payable to the
employee as taxable cash back. Employees may opt-out of
the medical plan by providing evidence of alternative medical
insurance coverage. Employees who opt-out of City-provided
medical coverage are eligible to receive a maximum
allowance of $1150 per month.

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