Read 'Belo' Plans on Payroll-Taxes.com
by Robert W. Ditmer, CPP*
The Code of Federal Regulations contains a section with the heading "Guaranteed Compensation Which Includes Overtime Pay." [29 CFR 778.400-414] This section contains the provisions of what is commonly called a Belo Plan, named after the court case on which it is based (Walling v. A.H. Belo Co., 316 U.S. 624 (1942)). As the title implies, it is actually an alternative salary method of compensation that includes expected overtime pay, but its use is even more restrictive than the fluctuating workweek method.
This method of compensation may be used if all of the following conditions are met:
- The employee must be "employed pursuant to a bona fide individual contract, or pursuant to an agreement made as a result of collective bargaining by representatives of employees" [29 USC 207(f); 29 CFR 778.407]
- The nature of the employment must necessitate irregular hours of work. As stated in the CFR, "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 certainty the number of hours he must work from week to week." [29 CFR 778.405]
- There must be significant variations in weekly hours of work both above and below the maximum limit of 40 hours of work. [29 CFR 778.406]
- The regular rate of pay may not be less than the minimum hourly rate. [29 CFR 778.408(a)]
- The employee's regular rate of pay can include only wages for hour worked. It cannot include additional forms of compensation, such as bonuses, commissions, housing allowances, etc. [29 CFR 778.408(c)]
- The compensation must include provision for payment of a maximum number of overtime hours at a rate of not less than one and half times the regular rate of pay. [29 CFR 778.409]
- The maximum number of hours worked for the guaranteed compensation cannot be for more than 60 hours per week. If the employee works more than 60 hours in a workweek, then he or she must be compensated for the additional hours at the rate of one and half times the regular rate of pay. [29 CFR 778.411]
Belo Plan Characteristics
Belo Plan restrictions are more extensive than other salary alternatives for non-exempt employees, thus making them more difficult to implement. For instance, the CFR gives examples of types of employees whose duties may necessitate irregular hours. These would 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." [29 CFR 778.405] The key point to keep in mind is that it is the work that necessitates the irregular hours, not the employer or the employee.
An important difference between Belo Plans and the fluctuating workweek method is the fact that under a Belo Plan there must be a contract or agreement between the employer and the employee. Under the fluctuating workweek method the employee only had to "understand" the method of compensation. Under a Belo Plan the employee must "agree" to the method of compensation. That necessitates a written agreement, usually in the form of a bona fide contract.
Another major difference is the fact that the hours must fluctuate above and below the 40-hour mark. Under the fluctuating workweek method all of the workweeks could be overtime weeks. If the employee's hours do not fluctuate above and below the 40-hour mark, then a Belo Plan can be declared invalid.
As long as the regular rate of pay is more than the minimum wage (for either the federal or state), then the employer and employee can agree on any rate. The rate does not have to be equal to or more than any rate that was in effect before the Belo Plan is adopted. For instance, the employee may have been working for $10 per hour, only being paid for the actual hours worked. Under the Belo Plan the agreement may be for only $8 per hour.
In order to determine an employee's salary under a Belo Plan, the employer and employee must agree on the maximum number of hours the employee will work under the plan without additional compensation. Although the FLSA sets a limit of 60 hours, both parties may agree on a lower limit. The employee's salary is determined by calculating the employee's wages for the maximum number of hours at straight time and then adding the overtime premium at 50% of the regular rate of pay.
For instance, suppose that both parties agree to a rate of $8 per hour with a maximum number of hours of 50 per week. The calculation would be as follows:
- Calculate the wages at straight time. (50 hr x $8/hr = $400)
- Calculate the overtime premium pay. (10 hr x .5 x $8/hr = $40)
- Calculate the employee's weekly salary. ($400 + $40 = $440)
So if the employee works 50 hours, he is paid $440. If he works only 24 hours, he is paid $440. If he doesn't work at all, he doesn't have to be paid. That's right, even under a Belo Plan, an employee does not have to be paid if performs no work at all during a workweek. But if he works just 30 minutes, he has to be paid $440.
What if he works 51 hours? Since the maximum agreed upon was only 50 hours, he must be paid additional compensation for any time over the maximum at one and a half times his regular rate of pay. So in this instance, he would have to be paid $12 per hour for any time over 50 hours in a workweek.
Another significant restriction is the fact that the employee cannot be entitled to any additional forms of compensation that the FLSA states must be included in the employee's total remuneration for calculating the regular rate of pay. This would include such things as nondiscretionary bonuses, commissions, performance awards, housing, etc. It does not preclude discretionary bonuses that do not have to be included in the regular rate. If an employee were to receive additional compensation that would normally have to be included in the calculation of the regular rate of pay, then the plan would be declared invalid.
One last point to be mentioned is the fact that the premium pay portion of the salary is not restricted to only time and a half. Both parties may agree to a higher premium, such as double time (100% premium), but it must be applied to the entire maximum hours under the agreement. However, any time over the agreed upon maximum still only has to be paid at a rate of one and half times the regular rate of pay.
So can an employer save money using a Belo Plan? I have read at least one author who says a Belo Plan cannot save an employer money. Let's consider an example of how compensation might be structured under a Belo Plan.
Suppose an employer wants to hire an individual whose hours will fluctuate above and below 40 hours per week and the employer wants to be able to pay the individual a salary. In analyzing the position the employer has determined that the employee often worked less than 30 hours a week in the previous year and never worked more than 52 hours a week in weeks when extra work was performed. The employer wants to pay the employee an annual salary of $32,000.
To calculate the regular rate of pay the employer can use the following steps:
- Calculate the projected weekly salary. ($32,000/hr / 52 weeks = $615.38/week)
- Calculate the effective number of hours to be paid. (The maximum hours would be 52, and 50% of the 12 overtime hours would be 6 hours, so the effective number of hours is 58 hours.)
- Calculate the regular rate of pay. ($615.38 / 58 hr = $10.61/hr)
The regular rate of pay is well above the minimum wage, so a Belo Plan based on that rate would qualify. So both parties can prepare an agreement that the employee will be paid a regular rate of $10.61 per hour for a maximum of 52 hours per week, and the compensation will be paid at a salary of $615.38 per week.
To prove that the calculations above are correct, we can calculate the weekly salary based on the provisions of the Belo Plan.
- Calculate the total wages at straight time. ($10.61/hr x 52 hr = $551.72)
- Calculate the overtime premium. ($10.61 x .5 x 12 hr = $63.66)
- Calculate the total wages for the workweek. ($551.72 + $63.66 = $615.38)
Will this plan save the employer money? Most definitely. The administrative costs of processing the salary certainly make such a plan worthwhile.
*Originally published as "Paying Non-Exempt Employees Under 'Belo' Plans," PAYTECH, May 2003, pp. 41-44
Robert W. Ditmer, CPP, is the owner of RWD Financial Support Service, located in Raleigh, North Carolina. Mr. Ditmer provides support and consulting services in the areas of bookkeeping, accounting, payroll and human resources. With over 25 years of experience Mr. Ditmer has worked in a wide variety of industries, and he worked as a Controller in four different businesses including a land planning/landscape architecture firm in Philadelphia, PA, a private dining and catering facility in Wilmington, DE, an IT support company in Glastonbury, CT, and a commercial construction management firm in Columbia, MD. Mr. Ditmer has also spoken at conferences and provided training on various issues, and he has written a number of articles in the field of payroll and payroll taxation. He is a member of the American Institute of Professional Bookkeepers and the American Payroll Association, and qualified as a Certified Payroll Professional in 2000. He can be reached at firstname.lastname@example.org
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