Overtime in Fluctuating Work Weeks
Dolley Law, LLC have handled many cases involving claims or questions about paying overtime to employees whose hours fluctuate each week. The FLSA generally provides that employers must pay employees overtime pay at one-and-a-half times their regular rate of pay for all hours worked in excess of 40 in any given workweek. Under this general principle, overtime must be determined and calculated on a week by week basis.
However, FLSA regulations set forth alternative methods by which employers may determine, calculate, and pay overtime each week where certain situations and conditions exist, such as fluctuating hours. One of those alternative methods of calculating overtime is known as the Fluctuating Work Week (FWW). In short, the FWW method involves paying employees a fixed salary each week, regardless of the number of hours worked, along with overtime premium pay at a rate of one-half (0.5) times the regular rate, as opposed to one-and-one-half (1.5) times the regular rate for hours worked over forty (40) in a week. Regulations on the FWW method provide guidance as to how to calculate overtime pay under such an arrangement.
Paying a Salary under the FWW
The United States Supreme Court first approved some of the principles behind the FWW method in Overnight Motor Transportation Co. v. Missel, 316 U.S. 572, 580 (1942). The FWW method essentially involves paying employees a fixed salary each week where the employer and employee have a mutual clear understanding that the salary covers all “straight time” hours worked each week (i.e., non-overtime hours) regardless of the number of hours each week, the employees’ hours worked each week actually fluctuate, and the average hourly rate of pay in any given week does not fall below the minimum wage rate.
Under this situation, an employer need only pay employees overtime at a rate of one-half (0.5) their regular rate—as opposed to time-and-a-half (1.5). This is because, in principle, there is a clear mutual understanding between the employer and employee about the arrangement, including the fact that the salary—in light of the fluctuating hours—already includes payment for the straight time component of all hours worked. However, because one must divide weekly pay by all hours worked to determine the “regular rate” for a week of work, this also means that, under the FWW method, the more hours an employee works in a given week, the less his regular rate of pay will be for that week for purposes of calculating the overtime premium. The FWW method has been seriously criticized for this very reason: the more an employee works in a week, the smaller his or her overtime rate will become during that week.
For the FWW method to apply, FLSA regulations require, among other things, a fixed salary, hours to actually fluctuate week to week, and the existence of a clear and mutual understanding between an employer and employee about the pay arrangement. In particular, the regulations provide: “[a]n 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. 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 [FLSA] if the amount of 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 ” 29 C.F.R. § 778.114.
Given the complexity of the method, the DOL provided the following example in the regulations to illustrate how it may work:
“The application of the principles above stated may be illustrated by the case of an employee whose hours of work do not customarily follow a regular schedule but vary from week to week, whose total weekly hours of work never exceed 50 hours in a workweek, and whose salary of $600 a week is paid with the understanding that it constitutes the employee's compensation, except for overtime premiums, for whatever hours are worked in the workweek. If during the course of 4 weeks this employee works 40, 37.5, 50, and 48 hours, the regular hourly rate of pay in each of these weeks is $15.00, $16.00, $12.00, and $12.50, respectively. Since the employee has already received straight-time compensation on a salary basis for all hours worked, only additional half-time pay is due. For the first week the employee is entitled to be paid $600; for the second week $600.00; for the third week $660 ($600 plus 10 hours at $6.00 or 40 hours at $12.00 plus 10 hours at $18.00); for the fourth week $650 ($600 plus 8 hours at $6.25, or 40 hours at $12.50 plus 8 hours at $18.75).” 29 C.F.R. § 778.114(b).
If you would like to discuss and understand the FWW method of calculating overtime in more detail, please contact Dolley Law, LLC by phone at (314) 645-4100 or by e-mail at firstname.lastname@example.org.