Keys to Making sure programs hold up to federal scrutiny

 

Profit-sharing plans are an excellent way to keep employees invested in a company’s success. But compliance issues can be costly for employers.

 

One Indiana lawn care company learned this firsthand. Precision Cut Lawn Service gave employees flat salaries with no overtime pay.

 

The company said this practice was part of its profit-sharing plan, where employees received individual bonuses depending on the business’s revenue during certain time periods.

 

But the Dept. of Labor (DOL) didn’t buy it. The agency ordered Precision Cut Lawn Service to pay $31,905 in back wages to 50 employees.

 

How it qualifies

 

The terms of a profit-sharing plan can’t keep workers from receiving pay for hours they’ve already worked.

 

Only bona fide profit-sharing plans will hold up under DOL scrutiny.

 

A plan is considered bona fide if:

 

It’s in writing

 

It’s funded solely by profits from the employer’s business, and

 

It clearly communicates participation requirements to employees.

 

Payments need to be made to the fund periodically. They amount paid must be determined by a formula that can be based on factors such as worker’s straight-time earnings, base rate of pay, length of service and total earnings. The formula should be clearly stated in the plan documents.

 

Note: As long as these requirements are met, employers are allowed to exclude any profit-sharing payments from the regular rate of pay.

 

More info: bit.ly/law562