Leave accrual value in a stepped-income situation

"Beverly" wrote

You should have stipulated that the "overtime" pay is based on **hours worked**, such that they have to **work** 30 hours before the higher rate kicks in, and that the higher rate is paid on **hours worked** and not on vacation or sick time (or other paid time that is not **worked** time.

ALL overtime laws are based on time worked. Your company policy should also be sismilarly based.

It would be based on regular time. No one should be allowed to work regular time, take off a day, and get time and a half for their vacation.

There is probably no company that allows that.

It wasn't my call. The President of the company contracted this with the employee and the details of why are much too much to go into here. I understand the pay arrangement and why, this isn't the issue.

I understand what you are saying, but this issue is more complicated than it appears on its face. Wouldn't a conservative approach be to base the expense/liability on the higher amount since it is entirely possible that the value, when used, will be the higher amount? Given a choice, I would rather overstate than understate an expense or liability. I fully understand that this would have to be disclosed in the financial notes.

"Beverly" wrote

No. You can make an adjustment at a later date though. Same for the accrual of vacation/leave time which gets taken after a pay raise say. Book it at the lower rate, and make an adjustment later, if needed.

The payment of the leave would be at the salary/30 rate, right? If that is the case, accrue the liability at that rate. Or, do you mean, if that person "rounded out" a week they would be paid at the OT rate?

Okay, let's see if I can explain this better. The employee in question had previously received a salary based upon a 50 hour week. Included with that were various benefits valued at $X. The employee wanted to reduce his hours, but must maintain 30 to continue to be eligible for medical benefits; hence, the salary based upon 30. He also has a great deal of accumulated leave of which most, if not all, will be carried forward to 2006.

My employer, rather than pro-rate benefits on a paycheck by paycheck basis, decided to adjust his pay so that his working 30 hours with full benefits as a hourly figure is equivalent to the hourly gross (salary+benefits) he enjoyed previously. Once 30 hours have been worked, his "hourly rate" increases because the benefits costs have been consumed in the first 30 hours. If he happens to work 50 hours, his pay will be exactly what it was when the salary was for 50 hours.

Since he has accumulated leave and some can be lost because not all can be carried forward, it has been agreed that he can round out his weeks to 40 hours with leave just as other employees use leave to round out a week.

Hence, if he works 25 hours in a given week, 5 hours of the time will be worth salary/30, but another 10 hours of leave can be used which, obviously, has a higher value. There is absolutely no way to tell the number of hours he will work or the leave he will choose to use when it is accrued.

Explained another way, working only 30 hours per week causes him to bear some of the cost of his full benefits. Have I made any sense?