Federal Court Finds RSUs Exempt from "Regular Rate" for FLSA Overtime Purposes

A federal court in California ruled that Apple was correct in excluding restricted stock units (RSUs) when calculating overtime under the Fair Labor Standards Act (FLSA). The FLSA generally requires that all remuneration for employment be included when calculating an employee's regular rate of pay for overtime purposes, unless a specific statutory exception applies. The FLSA excludes both gifts and income derived from stock options and stock appreciation rights. RSUs are not mentioned specifically. The court found that RSUs qualify as a gift because they are entirely discretionary and are in no way tied to hours worked. The court also found that RSUs fall within the equity exception because RSUs are nearly identical to the stock options and appreciation rights specifically mentioned in the statute--and that RSUs were rarely used when the statute itself was drafted. The plaintiffs in this case have appealed. The case is Costa v. Apple Inc., No. 3:23-cv-01353-WHO. For more information on post-OBBB developments regarding the tax treatment of overtime pay, visit Tax Facts Online. Read More: Link to Q8522.2.