Authored by Attorney Anne Bibeau, firstname.lastname@example.org, 757-446-8600
By now, you all are aware that on December 1, 2016, the salary threshold for the Fair Labor Standards Act (FLSA) white collar exemptions is about to jump to $47,476 per year. With estimates that 4.1 million workers will become non-exempt as a result of this change, employers are scrambling to fix pay, positions, and staffing to keep costs down after December 1, while retaining good employees. In the search for a solution, some employers are discovering two narrow and rarely used exceptions to the FLSA—the fluctuating workweek method and the Belo contract—which both allow the employer to pay non-exempt employees overtime at reduced rates. Those two payment methods, however, are fraught with challenges that render them far less appealing than they first appear. Before seizing on the fluctuating workweek or Belo contract as a panacea, employers should know the requirements for those methods.
The Fluctuating Workweek Method
The fluctuating workweek method allows an employer to pay a non-exempt employee a fixed weekly salary, plus overtime at the rate of 50% the employee’s regular hourly rate. At first blush, this sounds great: the employee’s overtime rate is only 50% rather than the usual 150%, and the more hours the employee works, the lower his hourly overtime wage will be. For example, under the fluctuating workweek method, if an employee’s weekly salary is $500 and she works 45 hours in a given week, her regularly hourly rate for that week is $11.11/hour ($500/45 hours), and her overtime rate for that week is $5.56/hour. Thus, her total wages that week are $527.80. If she works 60 hours the next week, her regularly hourly rate for that week drops to $8.33 ($500/60 hours) and her overtime rate to $4.17, for total wages of $583.40. By comparison, if the same employee were paid an hourly wage of $12.50, without the fluctuating workweek method, she would earn
$593.75 for a 45 hour workweek and $875.00 for a 60 hour workweek.
Sounds great for the employer, right? It can be, but only if you meet all of the following requirements:
Although the fluctuating workweek is permitted, the Department of Labor does not like it. In an audit, you can expect the DOL to scrutinize closely all time and pay records regarding anyone you pay on a fluctuating workweek basis, and to impose back wage liability if you have failed to comply with any of the requirements or paid any additional prohibited compensation.
The Belo Contract
Another option is a Belo contract, named for the Supreme Court decision that first allowed this exception to the FLSA (Walling v. A.H. Belo Co., 316 U.S. 624 (1942)). Under a Belo contract, the employer can pay a non-exempt employee a fixed weekly salary that covers all hours the employee works up to an agreed upon amount, so long as the amount does not exceed 60 hours. For example, if the parties agree that a weekly salary of $500 compensates the employee for up to 50 hours a week, then so long as the employee’s hours do not exceed 50 hours, the employer will owe him only $500, and will not have to pay any overtime premium. Only if the employee works more than the agreed upon number of hours is he owed anything beyond the agreed upon salary. Clearly, the Belo contract could significantly reduce overtime costs, but it is only available if all of these requirements are met:
Like the fluctuating workweek method, the Belo contract is sure to draw extra scrutiny from the DOL if your business is ever audited. It’s important, therefore, to make sure that you’ve met all the requirements before implementing a Belo contract and that you carefully monitor the employee’s hours and pay once one is in place.
With both the fluctuating workweek and Belo contract, if your business fails to meet all the requirements, there is a significant risk that the DOL or a court will disallow the arrangement and hold the business liable for back wages. Before rolling out either method, it is important to consult with a labor and employment law attorney to make sure you’ve met the requirements and are able to properly administer the plan.
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