Complexities of paying a salary to a non-exempt employee part 3
July 6, 2016
Courtesy of SBAM Approved Partner ASE
Author: Kristen Cifolelli
Over the last several weeks, we have issued a series of articles covering the three different methods you can use to pay a non-exempt employee a salary plus overtime: Fixed Salary for a Set Number of Hours, Fluctuating Work Week (FWW), or a Belo Contract. In this final article we will focus on the narrowest and most specific of the methods, called the Belo Contract.
The essence of a Belo Contract is that it allows employers to pay a constant wage that includes straight time and predetermined overtime pay, regardless of the number of hours worked that week. The Belo Plan is named after the Supreme Court case on which it is based, Walling v. A.H. Belo Corporation.
The Belo Contract requirements are much more stringent than the requirements under the Fixed Salary for a Set Number of Hours method and the Fluctuating Work Week method. The corresponding FLSA regulations can be found at 29 CFR 778.400-414 and are titled “Guaranteed Compensation Which Includes Overtime Pay”.
Below are the requirements that must all be met for a Belo Plan to be compliant:
- The agreement must be in writing (either an individual contract or collectively bargained agreement).
- The nature of the job necessitates irregular hours of work. According to the FLSA “the nature of the employee’s duties must be such that neither he nor his employer can either control or anticipate with any degree of certainly the number of hours he must work from week to week.”
- There must be significant variations in weekly hours of work, both above and below 40 hours per week. Belo Contracts that lack this fluctuation have been found to be invalid. While the FWW method detailed last week allows for valid schedules that only fluctuate above 40 hours, under the Belo Contract they must go both above and below 40 hours.
- The employee’s regular rate of pay has to be specified and can only include hours worked. They may not include any other form of compensation such as bonuses, commissions, housing allowances, etc.
- The regular rate of pay may not be less than the legal minimum hourly wage.
- The employer must guarantee payment of a specific number of overtime hours worked in excess of 40 at a rate that is not less than one and one half times the regular rate of pay.
- The maximum number of hours worked for the guaranteed compensation cannot be for more than 60 hours per week though the employee and the employer can agree to a lower number of hours. Any hours worked over the agreed upon number of hours must be paid at the rate of one and a half times the regular rate of pay.
In addition to the requirements detailed above, employers may not make deductions from the guaranteed salary for absences in workweeks in which the employee performs any work, regardless of how little.
The FLSA lists some of the positions that have irregular hours and therefore may qualify. They include “outside buyers, on-call servicemen, insurance adjusters, newspaper reporters and photographers, propmen, script girls and others engaged in similar work in the motion picture industry, firefighters, troubleshooters and the like.”
In order for an employee’s weekly salary to be set under a Belo Plan, both the employer and employee must agree on the maximum number of hours worked per week that salary will represent without additional compensation. Once the salary and the maximum number have been determined, the employer will use the maximum number of hours per week to calculate the regular rate and the overtime rate to be paid at time and one half. In addition, all hours worked over the agreed upon maximum number of hours must be paid at time and one half.
Here is an example to better illustrate how to determine the weekly salary and the regular rate under a Belo Contract:
Sarah holds a position with a work schedule that will meet the eligibility requirements of a Belo Contract. Sarah and her employer have agreed upon a weekly salary of $825, which is based on Sarah working a maximum of 50 hours per week. Based on a weekly salary of $825, her employer calculates that her regular rate of pay will equal $15 per hour for the base 40 hours and $22.50 per hour for the overtime premium (the additional ten hours are calculated at time and one half of the $15 per hour base pay). Sarah’s wages for 40 hours of straight time equal $600, and her wages for the overtime premium equal $225. This equates to a weekly salary of $825.
Whether Sarah works 45, 50, 35, or 40 hours per week, and so forth, she will receive $825. Employers must pay the weekly salary as long as any time was worked that week, although no salary is owed if she didn’t work at all. If she works 55 hours in a week she will receive the $825 for her weekly salary based on 50 hours and an additional $112.50 ($22.50 x 5) for the extra five hours of overtime.
The main advantage of a Belo Contract for employers is that they can control and predict their labor costs, and for employees it offers the security of a steady weekly income. Just as with the FWW method, if a Belo Contract is set up incorrectly or doesn’t meet the requirements under the FLSA, it can result in accidental FLSA violations, which can be costly. Employers considering using this method need to work closely with their legal counsel to make sure their processes strictly comply with Federal and State wage and hour laws.