Monday, June 21, 2010

The "Fluctuating Workweek" Method of Calculating Overtime Under the FLSA

This week we'll be posting a multi-part series on the "fluctuating workweek" method of calculating overtime under the Fair Labor Standards Act.  First, an introduction:

Non-exempt employees who are paid a salary may be paid for overtime on the “fluctuating workweek method” provided certain conditions are met. 29 CFR Section 778.114 provides as follows:
An employee employed on a salary basis may have hours of work which fluctuate from week to week and the salary may be paid him pursuant to an understanding with his employer that he will receive such fixed amount as straight time pay for whatever hours he is called upon to work in a workweek, whether few or many. Where there is a clear mutual understanding of the parties that the fixed salary is compensation (apart from overtime premiums) for the hours worked each workweek, whatever their number, rather than for working 40 hours or some other fixed weekly work period, such a salary arrangement is permitted by the Act if the amount of the salary is sufficient to provide compensation to the employee at a rate not less than the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours he works is greatest, and if he receives extra compensation, in addition to such salary, for all overtime hours worked at a rate not less than one-half his regular rate of pay. Since the salary in such a situation is intended to compensate the employee at straight time rates for whatever hours are worked in the workweek, the regular rate of the employee will vary from week to week and is determined by dividing the number hours worked in the workweek into the amount of the salary to obtain the applicable hourly rate for the week. Payment for overtime hours at one-half such rate in addition to the salary satisfies the overtime pay requirement because such hours have already been compensated at the straight time regular rate, under the salary arrangement. 

This regulation can be summarized as follows:

1.      The employee must be on a salary which is a “fixed amount” regardless of how many hours are worked in a given week (29 C.F.R. §778.114(a) and (c));
2.      The employee and employer must have a “clear mutual understanding” that the fixed salary is compensation for all hours worked in a week regardless of how many hours are worked in any given week (29 C.F.R. §778.114(a));
3.      The weekly salary must be large enough such that the employee’s hourly rate never falls below minimum wage (29 C.F.R. §778.114(a) and (c)); and 
4.      The employee’s hours must fluctuate from week to week (29 C.F.R. §778.114(a)).

The postings this week will walk through the above requirements for an employer to calculate an employee's overtime under the fluctuating workweek method, and the week will conclude with a consideration of whether the fluctuating workweek method can be used to calculate damages in employee misclassification cases.

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