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Payroll in Practice: 6.30.20

June 30, 2020, 1:06 PM

Practitioners’ questions are answered by a payroll and tax consultant who also is an enrolled agent licensed to practice before the Internal Revenue Service.

Question: Some of our employees are paid using the fluctuating-workweek plan. We anticipate that some of those employees may request FMLA leave related to Covid-19. If an employee works part of the week and then takes FMLA leave, do we still have to pay the full salary for the workweek?

Answer: During the current Covid-19 crisis, there are a number of leave options that may be available depending upon the employment situation. One of these options, where both the employer and the employee qualify, is the Family and Medical Leave Act leave. When employment involves a fluctuating-workweek plan, special rules apply to the use of FMLA leave.

Under a fluctuating-workweek plan, an employee is paid full salary for a week whether the hours are many or few. Hours worked that exceed 40 in the week would be paid at one-half the hourly rate for the week. The regular rate is determined by dividing the weekly salary by the number of hours the employee worked that week.

For example, an employee is paid $500 a week under a fluctuating workweek plan. If the employee works 40 hours, the regular rate of pay is $12.50 an hour ($500 / 40) = $12.50. If the employee works 50 hours, the regular rate of pay is $10 an hour ($500 / 50 = $10) and the employee is entitled to an additional $50 in overtime compensation ($10 x 0.5 x 10 hours) for total pay for the workweek of $550.

Employers are not required to pay the salary for a workweek if the employee does no work during that time. However, if any work is performed during the workweek, the employee must receive the full salary as regular pay for the week.

Under the FMLA, an employee is entitled to take unpaid leave for qualifying events such as illness of the employee or family member and birth or adoption of a child. In general, if an employee knows that leave will be required, the employee is to notify the employer ahead of time. In emergency situations, notice nay be waived.

The Code of Federal Regulations discusses how the FMLA and FLSA salary requirements interact with regard to exempt employees and those paid using the fluctuating-workweek method. Under the fmethod, the employer must compensate the employee on an hourly basis during the period that intermittent or reduced-schedule FMLA leave is to be taken. The employer may pay the employee only for the hours worked, including overtime.

The employee’s hourly rate is determined by dividing the employee’s weekly salary by the normal or average schedule of hours worked during weeks that FMLA leave is not taken. The change to payment on a hourly basis includes the entire period when the employee is taking intermittent leave, including weeks when no leave is taken.

If choosing to use this exception from the fluctuating-workweek method of payment, the employer must apply the exception uniformly to all employees paid on a fluctuating-workweek basis for whom FMLA leave is taken on an intermittent or reduced leave schedule basis. After the need for intermittent or reduced scheduled leave ends, the employee may be restored to being paid on a fluctuating-workweek basis.

These rules apply only when FMLA leave is taken on an intermittent or reduced schedule basis. If the employer does not elect to covert the employee’s compensation to hourly pay, then no deduction may be taken for intermittent or reduced schedule FMLA leave absences. If the FMLA leave period consists of only full workweeks and the employee performs no work during those workweeks, then unpaid FMLA leave is allowed for those workweeks.

If the employee timely notifies the employer of the need for FMLA leave, the employer has time to convert the employee to hourly basis before the leave period starts. In your example, the employee would start the leave period on an hourly basis. The employee would be paid for the hours worked Monday and Tuesday and any other hours worked during the leave period, but will be on unpaid FMLA leave for hours not worked during that workweek or any subsequent workweek during the duration of the leave.

However, if this is an emergency situation, such as the employee testing positive for the virus on Tuesday and had to take leave immediately, it is not clear from the regulations whether time off during that workweek could count as unpaid FMLA leave because the employee was still on the fluctuating-workweek method when the week started.

Treating time off during that workweek as unpaid FMLA leave would be inconsistent with the fluctuating-workweek method because payment of regular salary for all hours worked is required. Deductions for time not worked, other than occasional disciplinary deductions for willful absence or tardiness, are incompatible with the method.

Unless the leave was scheduled before the week started, the employee should be paid full salary for that week and unpaid FMLA leave for subsequent workweeks, whether by full weeks when no work is performed or by conversion to hourly pay plan for intermittent FMLA leave.

By Patrick Haggerty

Do you have a question for Payroll in Practice? Send it to phaggerty@prodigy.net.

To contact the reporter on this story: Patrick Haggerty at phaggerty@prodigy.net
To contact the editor on this story: Michael Trimarchi in Washington at mtrimarchi@bloombergindustry.com

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