Are Cash Payments Made to Employees in Lieu of Health Benefits to be Considered in Calculating Average Weekly Wages?
From the Desk Of:
Scott M. Tilley, Esq.
Managing Attorney, San Bernardino
Certified Specialist,
Workers' Compensation Law,
The State Bar of California,
Board of Legal Specialization
Some of our clients who are Employers are generous in offering their Employees cash payments instead of providing them health benefits. The scenario usually involves the Employees having health benefits through their spouse and, as such, they do not need health benefits offered through their own Employer. The Employer will then pay their Employee the cash value of the waived benefits. A recent Ninth Circuit Court of Appeals ruling has Employers rethinking this generosity and this decision by the Court may have an impact in our workers’ compensation world.
In the case of Flores v. City of San Gabriel, a group of Safety Officers sued the City of San Gabriel for several years of unpaid overtime and liquidated damages under the Fair Labor Standards Act (FLSA). An important issue for the Ninth Circuit was whether the FLSA required the City to include cash payments made in lieu of health benefits in its regular rate calculations for overtime purposes under the FLSA.
The City provided a “Flexible Benefits Plan” to its Employees under which a designated amount was provided to each Employee for the purchase of medical, vision and dental benefits. The Employees were required to take the vision and dental benefits. However, upon a showing they had insurance from another source, could decline the medical benefit and receive cash in lieu of the same. In this case, the payment in lieu would be added as a separate line item in the Employee’s regular paycheck. For the years 2009 to 2012, the monthly payment to the City’s Employees who declined medical insurance averaged between $1,000 and $1,300 per month.
The Ninth Circuit held that cash payments made in lieu of medical benefits should be included in the Employee’s wage calculations. While the specifics of the Flores case are beyond the realm of workers’ compensation, the issues raised may very well impact our practice in terms of calculating average weekly wages for purposes of providing benefits to injured workers.
In calculating average weekly wages in workers’ compensation, an Employee is entitled to include benefits received from the employment if they are given as part of "remuneration." This would include all benefits paid for services rendered. Labor Code § 4454 indicates that remuneration may include board, lodging and fuel. An Employee's remuneration may also 2 of 2 encompass "other advantages." These “other advantages” could be almost anything. A means of determining if something provided to the Employee is remuneration is to determine if it is provided for personal use rather than to be used for work. For example, Employer-provided work boots (or Employer reimbursement for Employee-purchased work boots), would not be for personal use and the value for same would not be part of an average weekly wage analysis. However, if an Employer provides the Employee with a cash sum to be considered a clothing allowance, that cash amount can be spent on anything and would therefore be considered for personal use.
The above analysis can be used in considering medical benefits an Employer provides to an Employee. Medical insurance an Employer provides to an Employee would not be for personal use, under the above analysis. The Employee is not provided the cash value of the medical insurance, so the insurance cannot be used for anything other than to obtain medical care. However, once the Employer provides cash in lieu of medical benefits, the benefit then changes character and becomes a personal use benefit. The cash in lieu can be used for any purpose the Employee desires. At that point, the cash in lieu should be considered in an analysis of average weekly wage for workers’ compensation benefit purposes.
Employers are rethinking their approach to the cash in lieu of medical benefits situation. The Court in Flores predicted that Employers would likely eliminate the practice of paying cash in lieu of providing medical benefits. However, until this practice is eliminated, the cash payment in lieu of medical benefits should be included in the average weekly wage analysis in workers’ compensation cases.
Should you have any questions about this issue please feel free to contact Parker & Irwin.