Posted April 28, 2011
By T. Scott Gilligan, NFDA general counsel
The Wage and Hour Division of the Department of Labor (DOL) recently approved a new policy that significantly restricts an employer's ability to pay bonuses to employees who are being compensated under a fluctuating workweek method of payment. It is critical that funeral homes which use the fluctuating workweek compensation system understand the new bonus payment restrictions so as not to jeopardize their fluctuating workweek status with the DOL.
As background, the fluctuating workweek arrangement is a compensation method for hourly employees that is sanctioned by DOL regulations. Basically, this compensation system permits an employer to pay an hourly employee who works overtime by half-time (50%) instead of time and one-half (150%). The trade-off for the employee is that the fluctuating workweek arrangement provides a guaranteed base salary regardless of the number of hours worked by the employee in a particular workweek. For example, if the employee is guaranteed a weekly wage of $500, he or she receives that base pay regardless of whether they worked 30 hours, 35 hours, or 40 hours. The compensation for any particular week cannot go below the guaranteed weekly pay.
For the employer, the benefit of the fluctuating workweek arrangement is that the employee receives only half time for hours worked in excess of 40 hours each week. Funeral homes interested in knowing more about the arrangement can obtain information on NFDA's Faxback system.
The DOL recently updated a number of its regulations including the fluctuating workweek regulation. As part of that overhaul, the DOL was asked to expand the regulation to explain how employee bonuses should be treated in calculating employee overtime. In somewhat of a surprise move, the DOL declined to expand the regulation as requested, and instead, announced that the payment of employee bonuses is inconsistent with a fluctuating workweek compensation system.
In adopting this position, the DOL acknowledged that paying employees bonus or premiums payments for certain activities such as working undesirable hours is a common and beneficial practice. However, despite the fact that employees benefit from such bonuses, the DOL felt that bonuses are incompatible with the fundamental concept of a guaranteed weekly wage. The DOL was concerned that employers can set the guaranteed weekly wage at a low level and shift a large portion of the employee's compensation into bonus and premiums payments. That could result in wide disparities in employee's weekly pay, thereby undermining the primary benefit of the fluctuating workweek arrangement for the employee.
What are the dangers in paying bonuses to employees who are under a fluctuating workweek arrangement? If the employer is audited, the DOL could take the position that the employer, by paying bonuses, has not been properly compensating hourly employees under the fluctuating workweek arrangement. The DOL could then order that all past overtime received by the employees must be re-calculated at time and one-half (150%) instead of half time (50%).
To avoid this possibility, employers paying hourly employees on a fluctuating workweek basis must eliminate all future bonus and premium payments to employees. To the extent that those bonus and premium payments were an expected part of the employee's pay, the employer may need to increase the employee's weekly base pay to compensate them for the loss of the bonuses in the future. Please note that while the new DOL policy covers bonuses and premiums for work provided by the employee, it does not prohibit discretionary bonuses such as Christmas bonuses.
Because the fluctuating workweek payment method has the capability of significantly reducing the compensation paid to employees for overtime work, its use by employers is closely scrutinized by the DOL. Funeral homes utilizing the fluctuating workweek arrangement must insure that they undertake all of the following steps to avoid a challenge by the DOL to their use of the fluctuating workweek compensation method:
A fluctuating workweek arrangement can be beneficial to both the funeral home employer and the funeral home employee. However, since the DOL closely scrutinizes the arrangement, it is critical that employers adhere to each of the above requirements. NFDA members with questions regarding the fluctuating workweek arrangement may contact NFDA General Counsel Scott Gilligan at (513) 871-6332 for a complimentary consultation.
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