Defining Compensation (414(s))

[Guest Jensen]

Please bear with me -- I'm a newbie to this area, and not even sure this question will make a lot of sense!

I have a client with about 95% hourly workers. Of those hourly workers, the majority work a regular 9-5 shift (that is, 40 hours per week, OT is very rare.) A small minority of workers, however, have recently begun working 12 hour shifts and are scheduled on 3-4 days in a row, then off 3-4 days, then on 3-4 days, then off . . . Because of the way they are scheduled, these employees routinely receive some OT, even though at the end of the year they will have worked the exact same number of hours as the employees with regular shifts. For example, everyone works 2000 hours per year, for those employees working 9-5, all 2000 hours are regular hours; for those employees working 12 hour shifts, 1875 are regular hours and 125 are OT. Additionally, the employer anticipates that due to budget restrictions they will soon have a portion of the workforce working between 32-35 hours per week -- enough to still be considered full-time, but scheduled less than 2000 hours per year.

The plan as it is currently written defines compensation to be the base compensation paid to an employee, excluding bonuses, OT, or other extra remunerations. Obviously, the employees who are now working the 12 hour shifts don't want to get short-changed by having a portion of their hours worked excluded because they are OT hours. (employees with regular schedules would get credit for the full 2000 hours while they would only get credit for 1875 hours). The employer still wants to exclude "real" OT -- that is, any hours over 2,000 per year. Could we use a definition like this: "Compensation shall mean the base compensation paid to an employee, excluding bonuses, OT, or other extra remunerations. Base compensation shall be the equivalent of 2,000 hours per year times the employee’s regular hourly rate for all employees working as full-time regular employees scheduled for 2,000 hours per year. For employees scheduled less than 2,000 hours per year but at least 32 hours per week, base compensation shall be the equivalent of the actual number of hours worked by the employee times the employee’s regular hourly rate. Base compensation for salaried employees shall mean the employee's annual salary excluding bonuses, overtime or other remunerations."

I realize that as long as there is an exclusion for bonuses, OT, etc. the definition does not fall into a safe harbor definition, but think this would work under 1.414-1(d). How does 1.414 -1(e) affect this defintion? Does anyone see any problems with this definition that I may be missing?

[QDROphile]

Have you thought about looking at overtime in terms of an amount in excess of regular pay rather than as some special kind of hour? If I work an hour, I get paid a rate, assume $10. If the hour is an overtime hour, I get paid a rate, assume $15. Now look at overtime pay as $5 on top of $10 regular pay for the hour. If I work 2000 hours in a year, my regular pay is the same for those hours, no matter how many hours are overtime. If the plan excludes overtime, it is not disregarding my hours, it is simply disregarding the additional pay for those hours that is overtime pay ($5 per hour).

That won't solve the complaint that not all pay is counted for benefits.