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Fourth Circuit Requires Employers to Calculate Value of In-Kind Compensation

    Client Alerts
  • February 09, 2018

Under the Fair Labor Standards Act, employee compensation counted for purposes of fulfilling minimum wage and overtime obligations need not be paid all in cash. According to Section 203(m) of the FLSA, wages also include under certain circumstances in-kind compensation such as board and lodging. According to a decision last month from the Fourth Circuit Court of Appeals (which includes North Carolina and South Carolina), the employer must demonstrate reasonable calculation of the value of such in-kind compensation in order to receive credit toward FLSA obligations.

In Balbed v. Eden Park Guest House, LLC, the plaintiff worked at a bed and breakfast and received, in addition to cash wages, a room, laundry, utilities, and breakfast. She sued for unpaid wages, claiming that she worked well in excess of the hours agreed upon between the parties. The employer responded that the value of her board and lodgings more than offset the wages for hours worked under their arrangement. The district court agreed, dismissing the suit.

The Fourth Circuit reversed this decision, remanding the matter for additional discovery. In its opinion, the court noted that in order to claim credit for in-kind compensation, the employer must demonstrate that it has calculated the fair market value of such compensation. A written agreement with the employee does not create an exception from this requirement. In this case, the defendant never presented evidence of such calculations. The employer argued that the value of the room and board should be based on the prices charged to guests at the B&B. The Fourth Circuit disagreed, instead concluding that the value of in-kind compensation must be derived from the actual cost to the employer of providing such services.

In-kind arrangements are relatively uncommon. Employers that wish to provide non-cash compensation as part of employees’ overall pay should carefully calculate and document the basis for valuing the benefits provided to the employees.