Practical guidance for employers using equity compensation in nonexempt workforces.
Employers that grant restricted stock units or other equity compensation (RSUs) or other incentive compensation to non-exempt employees should keep an eye on emerging wage-and-hour litigation where employees argue employers must include the value of RSUs when calculating overtime pay.
Employers that pay nonexempt employees through a mix of cash wages and equity -particularly RSUs – face a recurring compliance question under the Fair Labor Standards Act of 1938, 29 U.S.C. 207(e), about when, if ever, the employer must include the value of vested RSUs in the “regular rate” used to calculate overtime pay.
Whether RSUs fall within that broad sweep—or qualify for a statutory exclusion—remains contested in active litigation, and Congress has begun examining the question as well. Employers should not assume that historical payroll practices around equity compensation are necessarily defensible going forward.
The Regular-Rate Framework, In Brief
Section 7 of the FLSA requires employers calculate and pay nonexempt employees overtime based on the employee’s “regular rate of pay for hours worked over 40 in a workweek. 29 U.S.C. § 207.
Department of Labor (DOL) Wage and Hour Division (WHD) implementing regulations explain that the regular rate is an hourly rate derived by dividing total compensation in the workweek (with limited exclusions) by total hours worked. 29 C.F.R. § 778.109. DOL guidance underscores that the regular rate “includes all remuneration for employment paid to, or on behalf of, the employee,” except for items Congress specifically carved out. The regulations generally define the regular rate broadly to include “all remuneration for employment” subject to the enumerated exclusions 29 C.F.R. § 778.108. Thus, the regular rate is total compensation in the workweek, minus statutory exclusions, divided by total hours worked. See Fact Sheet #56A: Overview of the Regular Rate of Pay Under the Fair Labor Standards Act (FLSA).
The Worker Economic Opportunity Act of 2000, Public Law 106–202, amended section 7(e) of the FLSA by adding a new paragraph (8) to such section 7(e) to exempt any value or income derived from employer-provided grants or rights provided pursuant to a stock option, stock appreciation right, or bona fide employee stock purchase program from the determination of an employee’s regular rate for purposes of calculating such employee’s overtime compensation.
For traditional stock options, the Department of Labor has issued specific guidance recognizing that, when statutory conditions are met, income from certain stock option, stock appreciation rights, and bona fide employee stock purchase programs may qualify as excluded from the regular rate. DOL Fact Sheet #56. The Fact Sheet describes the conditions—such as eligibility, timing, and disclosure requirements—that the Department views as relevant to that exclusion. RSUs, however, are not stock options, and the Department’s stock-options guidance does not, by its terms, resolve how RSU grants and vesting should be treated under the regular rate.
Congressional Attention: The Valuing Employee Stock Today Act
On May 4, 2026 has begun engaging with the regular-rate treatment of equity compensation. Representative Ryan Mackenzie introduced the Valuing Employee Stock Today Act, described in his official press release, as legislation intended to address how equity compensation is treated for purposes of expanding worker access to equity. The bill’s introduction underscores that, beyond the courts, policymakers are actively considering whether and how to clarify the statutory treatment of stock-based pay. Until Congress acts or a controlling court decision is issued, employers operate under the existing ambiguous statutory and regulatory framework left by the omission of Congress to include RSUs expressly in the incentive stock compensation exemption added to the FLSA.
Active Litigation: The Costa v. Apple Matter
In the Costa v. Apple Inc. litigation currently pending in the U.S. District Court for the Northern District of California, a group of nonexempt employees suing Apple contend that Apple was required to include the value of vested RSUs in the regular rate used to compute their overtime. The court’s public docket reflects ongoing proceedings, N.D. Cal. case page, Costa v. Apple Inc., and the court has entered orders addressing case-management issues, including a publicly available order granting plaintiffs’ motion for distribution of judicial notice Order, Costa v. Apple Inc. (N.D. Cal.).
At this stage, the case is best understood as an active trial-court dispute that frames—but has not resolved—the underlying regular-rate question for RSUs. To date, no official U.S. Supreme Court docket source has determined this issue. Employers should treat the legal landscape as unsettled rather than as one in which a definitive appellate or Supreme Court ruling is in hand.
Practical Tips For Employers
Given the broad statutory definition of remuneration and the unsettled treatment of RSUs, employers that pay nonexempt employees with equity should consider a focused internal review. The following steps reflect the existing legal framework without prejudging the outcome of pending litigation or legislation:
- Inventory who receives equity. Identify any nonexempt employees who hold or vest RSUs, stock options, or other equity. Exempt-only equity programs do not raise the same regular-rate issue.
- Map equity to workweeks. Document grant dates, vesting events, and the workweeks in which value is delivered. The regular-rate calculation is performed on a workweek basis (29 C.F.R. § 778.109).
- Review plan documents against DOL guidance. For traditional stock option programs, compare plan terms to the conditions described in DOL Fact Sheet #56. Recognize that this guidance addresses stock options specifically and does not, on its face, resolve RSU treatment.
- Confirm how payroll treats vested RSUs. Determine whether your payroll system currently includes vested RSU value in the regular rate, and if not, on what basis the exclusion is being taken. Document the reasoning in light of 29 U.S.C. § 207 and 29 C.F.R. § 778.108.
- Coordinate compensation, legal, and payroll. Equity decisions are often made by compensation teams without parallel review of FLSA implications. Build a recurring touchpoint among those functions.
- Monitor the docket and Congress. Track developments in Costa v. Apple Inc. through the court’s public case page and watch for further action on legislation such as the bill described in Representative Mackenzie’s press release.
Bottom line
The FLSA’s regular-rate rules are intentionally broad, and the Department of Labor’s longstanding guidance treats “all remuneration” as the default starting point (DOL Fact Sheet #56A; 29 C.F.R. § 778.108). With RSU treatment unsettled in the courts and on the legislative agenda, employers should not wait for a definitive ruling to confirm that their current practices rest on a documented, defensible reading of the statute and regulations. A focused internal review now is significantly less costly than a retrospective recalculation later.
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