September 07, 2017
To help incentive planners navigate the changing rules and restrictions related to noncash incentive rewards and labor laws, the Incentive Federation has published a bulletin providing guidance on the Federal Fair Labor Standards Act and California labor laws. Written by George P. Delta, the Incentive Federation's legal counsel, the guidance lays out the labor-law issues that could arise when offering noncash incentives such as merchandise, travel and gift cards, and what steps to take in order to avoid any legal snags.

Delta looks into the concern that a reward and recognition program could violate the FLSA or California labor laws if an employer does not also offer a cash option. 

He gives the example of a retail company running an incentive program. It may give its employees points for reaching sales targets, which can be redeemed for noncash rewards, without allowing them to redeem the points for a cash value. In the case of the federal FLSA, which regulates the payment of overtime and what type of compensation can be used to calculate the base rate of such overtime, Delta concludes, "I could not find any specific authority within the FLSA that would preclude a noncash-only (for example, merchandise, gift cards, cash or debit cards, or travel) incentive award." 

He emphasizes that while these awards must be included in calculating the base rate of pay for overtime purposes, they are allowed to be payable in merchandise, gift cards, cash or debit cards, travel, or other such awards -- keeping exclusively noncash-award programs from being prohibited. 

In the case of the California labor laws, Delta maintains that the legal issues are a bit more complicated. According to Delta, the language of the state's labor-code statutes can "create obvious problems if the awards that employees receive under the program that the client intends to operate were deemed to be a form of 'wages.'" 

To avoid these issues he suggests using criteria in which the awards would "appear to be discretionary bonuses under both federal and California law" and would not be subject to any provision of California Labor Code section 212. Those criteria are: that the program does not promise to pay awards based solely on a specific formula; that it clearly states to the employees that they are not contractually entitled to the noncash award; and that the program "retains discretion, which is exercised systematically and periodically…with respect to providing the awards." This way, the awards will be considered discretionary bonuses and not run into any issues with California Labor Laws.

For more details about these issues, read Delta's complete "Washington Update."