Florida is one of the busiest states when it comes to federal lawsuits involving unpaid overtime under the Fair Labor Standards Act (FLSA). This has created for some employers a heightened awareness of the requirements. For example, most employers are aware that simply paying a salary does not, by itself, make an employee exempt from overtime pay. Unfortunately, many employers believe they must revert back to paying certain employees an hourly rate if their employees do not fall within any applicable exemption.
Paying employees a salary, however, may be the best option for an employer. Under the FLSA, employers are required to pay overtime at a rate not less than one and one-half times an employee’s regular rate of pay for all hours worked over 40 in a given workweek. What many employers do not realize is that, under certain circumstances, an employer has an option of how to calculate “one and one-half times the regular rate” under the fluctuating workweek overtime calculation.
Using such calculation, an employee may be paid a fixed salary to cover all hours worked in a given workweek, whether that is 40 hours, below 40 hours, or above 40 hours. There must be a clear and mutual understanding between the employee and employer that the salary paid is for all hours worked in the workweek. The employee’s effective hourly rate (i.e. the fixed salary divided by the number of all hours worked in the week) may fluctuate from week to week depending on the number of hours worked.
Under this method, the employer would only need to pay an additional half-time pay for hours over 40, as it has already paid the employee for all of his straight-time compensation, (i.e. the weekly salary). Instead of paying one and one-half times the regular pay for each hour over 40 in a given workweek, the employer essentially feels as if it is only paying the half-time rate for hours over 40. The U.S. Department of Labor, in its regulations, provides an illustration of the application of the fluctuating workweek method:
The application . . . 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).
While the fluctuating workweek method of calculating overtime will not work for every non-exempt employee, it certainly is a tool employers should consider for those employees who do not fall within any clear FLSA exemption and whose hours fluctuate weekly. Likewise, it may be particularly useful in situations where an employer is unclear as to whether an employee should be classified as exempt or not. By paying such employees using the fluctuating workweek method, the employer may avoid the risk and uncertainty of FLSA litigation.
There are, of course, a number of pitfalls the employer will need to avoid and should consult an attorney knowledgeable of the FLSA and applicable Department of Labor regulations.
Richard W. Smith,
Partner at NeJame Law &
Mark NeJame jointly
contributed to this article