Restricted Stock Units and Overtime Lawsuits: Are You Underpaid?

Attorneys working with ClassAction.org are investigating whether lawsuits can be filed against companies that may be denying proper overtime wages to certain employees who receive restricted stock units (RSUs) as part of their compensation.

Specifically, the attorneys believe that once an employee’s RSUs vest, they should be treated as income and factored into the employee’s overtime rate—but it’s suspected that some employers may be excluding RSU payments from their overtime calculations. Under the federal Fair Labor Standards Act (FLSA), overtime is calculated as one-and-a-half times the worker’s regular rate of pay, which includes all forms of compensation. If vested RSUs are left out of an employee’s regular pay rate, the worker could be getting paid at a lower overtime rate than they’re legally entitled to under federal labor law.

Do Restricted Stock Units Count as Income?

Yes, restricted stock units are considered income by the IRS for tax purposes once they vest.

RSUs are a type of equity compensation that grants company stock to employees through a vesting plan—typically after the employee has remained with their employer for a certain amount of time or reached certain performance milestones. When they vest, RSUs are assigned a fair market value and distributed to the employee, who then has the right to sell them.

As one user stated on Reddit, the money from vested RSUs “acts like a bonus”—meaning that in the year they vest, their entire value is reported as regular income.

According to attorneys, if a non-exempt employee works overtime during a period when they received RSU income, their overtime rate should reflect this increase.

Overtime Calculations for Non-Exempt Employees

Under the Fair Labor Standards Act (FLSA), all “non-exempt” employees are entitled to time-and-a-half overtime pay for all hours worked in excess of 40 per week, regardless of whether they’re paid by the hour, receive a salary, or are paid on some other basis.

Generally, workers who are employed in an executive, administrative or professional capacity and make more than a certain salary threshold are considered exempt from the FLSA’s overtime requirement. Other examples of exempt workers include outside sales employees and computer professionals.

For non-exempt employees, overtime rates are calculated based on the employee’s average hourly rate, which generally includes all types of compensation they received in a workweek (e.g., base salary, hourly wages, bonuses, and in some cases equity compensation like RSUs).

An employee’s regular rate can be calculated by dividing the total pay they received in a workweek by the number of hours they worked. Their “time-and-a-half” overtime rate is then calculated by multiplying the regular rate by 1.5.

The FLSA provides the following example of a regular pay rate and overtime calculation for a worker who is paid a weekly salary:

If an employee is hired at a salary of $350 and if it is understood that this salary is compensation for a regular workweek of 35 hours, the employee’s regular rate of pay is $350 divided by 35 hours, or $10 an hour, and when the employee works overtime the employee is entitled to receive $10 for each of the first 40 hours and $15 (one and one-half times $10) for each hour thereafter.”

Salaries that cover periods longer than a workweek must be reduced to their workweek equivalent to calculate the employee’s regular pay rate, the FLSA states.

RSU Overtime Lawsuit Example

In December 2021, Google was hit with a class action lawsuit that claimed the tech giant violated the Fair Labor Standards Act and California labor law by failing to pay non-exempt workers proper overtime wages. Per the case, Google illegally excluded workers’ RSU payments and commissions when calculating their regular rates of pay—and thus paid them at lower overtime rates than they were “guaranteed by law.”

The plaintiff said he worked for Google as an account manager and received restricted stock units as non-discretionary equity compensation.

In August 2023, a federal judge signed off on a nearly $8.4 million settlement that covered Google employees who worked for the company between December 22, 2018 and June 5, 2022 and received restricted stock units or a sign-on bonus.

How Could a Lawsuit Help Me?

If filed and successful, a lawsuit could help workers recover money they should have been paid for overtime hours. It could also force employers to change how their employees are paid and ensure that their pay policies are in line with federal and state labor laws.

What You Can Do

After you get in touch, an attorney or legal representative may reach out to you directly to ask you some questions and help you determine whether you can take legal action. It doesn’t cost anything to fill out the form or speak with someone, and you’re not obligated to take action if you don’t want to.

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