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Higher Salary in Lieu of Benefits: California

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  • Higher Salary in Lieu of Benefits: California


    I've recently run into the following issue in San Francisco and would love some legal reasons why it is not or is allowable:

    We will be hiring a small portion of employees for 12 - 18 months to work on a project funded by a grant. We'd like to word their contract slightly differently in order to create a specific class "Full Time Temporary Employees". They will have specified start and end dates. The question we have is several of these folks do not want to give up their current medical coverage and would prefer to get more salary paid to them in lieu of the benefits package. Is this legal in California? Specifically if they just want the money and are not covered do we not then encourage people to go without benefits?

    Is it legal in California to offer cash in lieu of benefits?

    Also, to speak to the San Francisco Health Care Ordinance issue, we are a non-profit organization currently with 20 employees and are not subject to that law.

    Thank you in advance for any help.

  • #2
    There is no "one size fits all" answer here. Generally employers are not required to offer benefits. HOWEVER, if the employer chooses to offer benefits, then sometimes their decisions lock them into things. Example. In the 1980s I was working for a manufacuturing company with a 401(k) plan. The problem was while no employer is required to offer a 401(k), IRS is deadly serious about enforcing the exact wording of the plan to the letter. This company took a $250K penalty hit for what arguably were some fairly minor technical violations involving the handling of part time and temporary workers. 401(k)s were very new back then. HR had a consultant set up the plan, but they (HR) really did not understand just how serious IRS was about hard technical enforcement of the exact wording of the plan.

    401(k) plans are very specific to the company. These types of plans can and do very widely from company to company. However I have never worked for a company that the sort of thing you discussed would have been legal under the 401(k) plans AS WRITTEN. Now benefit plans can be (sometimes) be re-written on a go-forward basis, but this does not happen by themselves. You really need to have a benefits professional look at each and every one of your benefit plans prior to doing this.

    Also, FYI, the Section 125 rules are changing big time in 2009. Most employers tend to have one of these plans (aka Cafeteria Plan or POP), but until now one had a better chance getting hit by lighting at work then having IRS audit the Section 125 plan. Part of the 2009 changes invalidate the entire Section 125 plan if a single technical error occurs and the penalty structure has been changed to give IRS strong reasons to audit these plans now.
    "Reality is that which, when you stop believing in it, doesn't go away".
    Philip K. **** (1928-1982)


    • #3
      Thank you DAW, this was very helpful. I also got information from the CA Labor Commissioner's Office and the SF Office of Labor Standards that basically stated the same basic thing principle - if you offer something like this to one, have it in a foolproof iron clad written policy and standardize it so you are not called on discrimination in the future. For instance they suggested offering a fixed percentage or a certain amount of days of additional vacation in lieu of benefits.


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