HR Newsletter

Under the federal Fair Labor Standards Act (FLSA) employers may use an alternative formula for calculating overtime pay called the fluctuating workweek method, provided certain conditions are met. Here are answers to frequently asked questions about the fluctuating workweek method.

Q: Under the FLSA, when can the fluctuating workweek method be used to calculate overtime for non-exempt employees?

A: To use the fluctuating workweek method of calculating overtime under the FLSA:

• The employee's hours must fluctuate from week to week;
• The employee must receive a fixed salary for whatever hours they are called upon to work in a workweek, regardless of how few or how many;
• The employee and employer must have a clear and mutual understanding (which should be in writing) that the fixed salary is compensation (apart from overtime premiums, bonuses, and other incentive pay) for the hours worked each workweek;
• The salary must be sufficient enough to meet the applicable minimum wage for each hour worked in the workweeks in which the number of hours worked is greatest; and
• The employee must receive extra pay for overtime hours worked at a rate no less than one-half times their regular rate of pay. Since the salary is intended to compensate the employee at straight time rates for whatever hours are worked in the workweek, the employee's regular rate will vary from week to week. To obtain an employee's regular rate for a particular workweek, divide the number of hours they worked into their salary.

Q: Can you provide an example using the fluctuating method?

A: Let's say an employee receives a weekly salary of $600 with the understanding that the salary is compensation for all hours worked in the workweek (apart from overtime (OT), bonuses, and other incentive pay). The employee's work hours never exceed 50 hours per week. The employee works 37.5 hours during week one, and 48 hours during week two. During weeks one and two, the employee works four night-shift hours per week, which are compensated at the premium rate of $5 per hour. Here's how it would work:

Calculating Straight Time Earnings, Regular Rates of Pay, and Total Compensation

Q: Do the employee's hours need to fluctuate above and below 40 hours to use the fluctuating workweek method under the FLSA?

A: In both recent regulations and guidance, the U.S. Department of Labor has made clear that an employee's hours need only fluctuate from week to week and that there is no requirement that the employee's hours dip below 40 hours.

Q: Under the FLSA, can I provide bonuses to employees paid overtime using the fluctuating workweek method?

A: Earlier this year, the DOL issued a final rule that clarifies:

• Bonuses, premium payments, commissions, and hazard pay on top of fixed salaries are compatible with the fluctuating workweek method under the FLSA.
• Employers must include these payments when calculating the regular rate of pay if otherwise required under the FLSA.

The final rule took effect August 7, 2020.

Q: Does the "clear and mutual understanding" need to extend to the specific method for calculating overtime under the FLSA?

A: In the final rule, the DOL said that while the employee and employer must have a clear and mutual understanding that the fixed salary is compensation (apart from overtime premiums) for the hours worked each workweek, it doesn't need to extend to the specific method used to calculate overtime pay. However, as a general best practice, you may want to consider making the method of calculating overtime clear to impacted employees.

Q: Sounds like an attractive option. Are there any caveats to consider?

A: While the fluctuating workweek method can seem like an attractive option for reducing overtime costs when compared with the standard overtime calculation, there are some things to consider. For example, some states, including California, expressly prohibit employers from using the fluctuating workweek method for paying overtime. This method is also a common source of employee lawsuits. Additionally, deductions from the employees' fixed salaries are generally off limits (see question below), which could impact costs. Check your state and local law and consult legal counsel as necessary before using it.

Q: If I pay an employee overtime using the fluctuating workweek method, can I make deductions from their salary if they miss work for personal reasons or because they're sick?

A: In general, the fixed salary may not vary with the number of hours worked in the workweek. For instance, the DOL clarified in recent guidance that if employers use the fluctuating workweek method, they're prohibited from making deductions from the employee's salary for absences occasioned by the employee, such as an employee who exhausted all of their sick leave or hasn't accrued sick leave to cover the absence. The one exception is for willful absences or tardiness or for infractions of major work rules, provided that the deductions don't cut into the minimum wage or overtime pay required by the FLSA, according to the DOL. Consider consulting legal counsel to help make such determinations.

Compliance Recommendations:

Before using the fluctuating workweek method, ensure that it's permissible under federal, state, and local laws and evaluate the benefits and risks of doing so, consulting legal counsel as necessary.

Prev

Home

Next