DOL’s "Fluctuating Workweek" Method of Pay Explained - Part 2

DOL’s

Posted on 11/11/2019 at 01:54 PM by Mike Staebell

Our previous Wage and Hour Watch post summarized DOL’s recent Notice of Proposed Rulemaking on the FLSA fluctuating workweek overtime regulations.  Today’s post will focus on the particulars of the current rules.

The fluctuating workweek (FWW) method for calculating and paying overtime for non-exempt salaried employees is laid out in 29 CFR Section 771.114. An initial requirement is that the hours worked do not customarily follow a regular schedule, but vary from week to week – including some weeks when the total number of hours may not reach 40. (However, in my experience, the DOL has not consistently enforced this.) A second requirement is that the employee receive a guaranteed salary each week, no matter how many hours are worked, plus overtime for any hours worked over 40 in a week. The third requirement is that the employee and employer have a “clear mutual understanding” that the employee is paid under the FWW method and what that means. The employee doesn’t have to “agree” to being paid under the FWW method—just understand it. It’s best if this understanding is contained in writing, of course (This section of this blog is a good source to explain the FWW method for such a writing).

Overtime premium is computed differently for employees paid on the fluctuating workweek method as compared to non-exempt employees paid on an hourly basis.  Under the FWW method the “regular rate of pay” varies based on the actual hours worked each week. The FWW guaranteed salary is divided by all hours worked in the week to determine the “regular rate of pay” for that week. Then the overtime hours are paid at half that regular rate. 

For example, assume an employee on a fluctuating workweek gets a guaranteed weekly salary of $500 and works 42 hours in week 1 and 45 hours in week 2. Below is how the regular rate of pay would be computed, and how much the overtime premium pay will be.
 

 

Week 1

Week 2

Regular Rate

$500 ÷ 42 = $11.90/hour

$500 ÷ 45 = $11.11/hour

Overtime Rate

$11.90/hour x ½ = $5.95/hour

$11.11/hour x ½ = $5.56/hour

Overtime Pay

$5.95 x 2 hours = $11.90

$5.56 x 5 = $27.80

Total Pay

$500 + $11.90 = $511.90

$500 + $27.80 = $527.80


If bonuses, commissions, and other non-discretionary pay are received, the calculation of the regular rate must take that additional pay into account—as spread over the time period covered by such payments. While that adds another layer of complexity to the calculation of the regular rate, this complication applies equally to non-exempt employees paid under the FWW method and those paid on an hourly basis. 

Another issue with the FWW pay method is that reductions to the employee’s guaranteed salary are prohibited. If a non-exempt employee paid on the FWW method works any hours in a week, the full salary must be paid. Paid leave can be used to cover hours not worked, but pay-docking when there is no available paid leave is not allowed. This pay-docking prohibition is more stringent than the pay-docking prohibitions for exempt employees paid on a salary basis. For instance, pay-docking in full day increments for time off for sickness or disability under a bona fide plan, policy, or practice is allowed for exempt employees paid on a salary basis and who don’t have available paid leave to cover the absence, but there is no corollary for non-exempt employees paid under the FWW method.

In summary, there are pros and cons to using the FWW method of paying non-exempt employees. Some of the difficulties include calculating the regular rate and overtime rates for each week when overtime is worked, and prohibitions on pay-docking of the guaranteed weekly salary - both of which run counter to what HR and payroll professionals may be used to doing for non-exempt employees. Whether to apply the FWW method to non-exempt employees should be weighed carefully, and administration of it handled with equal care. An employment attorney or WHD compliance specialist can help employers comply with this Rubik’s Cube of a regulation.

 

 

Questions, Contact us today.

 


The material, whether written or oral (including videos) that is posted on the various blogs of Dickinson Law is not intended, nor should it be construed or relied upon, as legal advice. The opinions expressed in the various blog posting are those of the individual author, they may not reflect the opinions of the firm.  Your use of the Dickinson Law blog postings does NOT create an attorney-client relationship between you and Dickinson, Mackaman, Tyler & Hagen, P.C. or any of its attorneys.  If specific legal information is needed, please retain and consult with an attorney of your own selection.

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