The Employee Stock Options Act

by Jack Ori

The Federal Labor and Standards Act, or FLSA, regulates employee stock options programs. Stock option programs are benefit programs where employees have the opportunity to purchase stock in the employer's company if they wish. Such programs must be voluntary as well as conform to FLSA regulations about stock prices, necessary disclosures and the length of time employees must hold onto their stock.


If an employee exercises his stock option, his investment income is excluded from his base pay rate. This allows employers to correctly calculate the employee's overtime rate if the employee works more than eight hours in a day and is a non-exempt employee. For example, if an employee normally earns $10 per hour but exercises a stock option that currently has a value of $60, the employee's overtime rate would be far higher if the $60 were considered part of his base pay.

Disclosure Requirement

If an employer offers stock options to employees, he must fully disclose the terms of the stock option to any employee who wishes to participate in the program. The employer may disclose the terms of the stock option verbally or in writing. He can also use any medium he wishes -- email, memo, or telephone -- to disclose the terms. As long as the disclosure is clear, the employer has met his responsibility.

Waiting Period

Employees must wait at least six months after purchasing stock options before they can cash in their stock. In addition, employers must not offer stock options as less than 85 percent of the stock's fair market value. If an employee dies, becomes disabled or retires, or if the company is sold, employees or their heirs may sell their stock options even if the six month waiting period hasn't elapsed.


Employers have the right to create eligibility criteria for participation in stock options programs. Employers can impose eligibility criteria, such as length of service, on all employees or can examine employees' past performance to determine whether a particular employee is eligible for participation. Employers cannot sign contracts agreeing to evaluate employees' past performance for stock option eligibility; the employer must voluntarily choose to evaluate past performance rather than current or expected future performance.

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