Human Resource Blog

Stock Options for our Alaska Company

Our employees in Alaska have started to ask us about having stock options in the company. What is the law here?

According to the Fair Labor Standards Act (FLSA), the treatment of stock options within companies across the U.S. (not just in your Alaska company), is based upon the Worker Economic Opportunity Act that Congress passed in 2000 as an amendment of the FLSA.

The FLSA is the federal Act that requires that employers throughout the country pay their employees at least the Federal Minimum Wage (in most cases, but there are exceptions to this law.) The FLSA also requires that employers pay overtime pay that is equal to one and a half times the normal rate of pay when an employee has to work more than 40 hours per week. The stock options may allow non-exempt employees (or those employees that are eligible for overtime pay) to buy stock in the company. When this happens, those stock options are excluded from the regular rate of pay for the employee.

If you would like to do so, the FLSA allows you to offer your employees the opportunity to participate in a stock option program, such as a stock appreciation right or the actual purchase of stock from the company. If the program meets certain criteria, then the employer might be able to exclude the stock options from the regular rate of pay when it comes to adding up all overtime pay.

Here are some of the criteria that the employer and employee must meet in order to get this exclusion:

1. It is the responsibility of the employer to provide the employee with information regarding the terms and conditions of the chosen stock option program. This information should be available when the employee begins his or her participation in the program.
2. The employer may not offer more than a 15 percent discount off of the fair market value of the stock. Employees are required to wait at least six months after they receive their stock options before they can exercise the right for stock or cash, according to the Act.
3. The employee must voluntarily participate in the program.  CB