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.
Salary Calculations
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)
- Calculatethe 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.
Compensation Structure
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
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**Robert W. Ditmer, CPP, is Controller of Parker, Cade & Large, Inc., a commercial real estate development and construction company located in Columbia, Maryland. Mr. Ditmer has worked in five different states and has experience dealing with multi-state taxation involving states with reciprocal agreements and those that do not. He can be reached at robertwditmer@yahoo.com.
