By: R. Scott Alagood
Employers trying to find alternatives to the traditional 9-to-5, 40 hour work week may want to consider a fluctuating work week schedule. A fluctuating work week schedule may lessen the financial burdens of personnel who are not exempt from overtime pay requirements. It may also increase productivity and enhance work/life balance, while meeting the operational needs of the office. Administrative personnel and office workers are generally non-exempt employees, as defined by the Fair Labor Standards Act (“FLSA”), earning overtime at one and one-half times their regular rate of pay. The FLSA sets the standard work week at 40 hours. Employers are required to pay non-exempt employees no less than 1.5 times their regular rate of pay for hours worked in excess of 40 hours. However, there is an exception allowed to employers properly utilizing a fluctuating work week as an alternative method of satisfying the FLSA’s overtime pay requirement.
To take advantage of the fluctuating work week exception, specific conditions must be met. An employee employed on a salary basis may have hours of work which may change from week to week and the salary may be paid pursuant to an understanding with the employer that the employee will receive a fixed amount as straight time pay based upon the hours called upon to work in a particular work week. Importantly, this arrangement must be previously agreed to by the employee. It cannot be claimed after the fact. It should be in writing and included in a written employee manual or policy. The amount of the salary must be sufficient to provide compensation to the employee at a rate not less than the applicable minimum wage rate for every hour worked in those work weeks in which the number of hours worked is the greatest. For overtime hours, the employee should receive additional compensation beyond the fixed salary at a rate not less than 1.5 times the regular rate of pay. Currently, minimum wage is set at $7.25 an hour.
For example, an office worker has a fixed weekly salary of $500.00 and works 55 hours in a single workweek. Under the fluctuating work week exception, the employer must divide the $500.00 fixed salary by the 55 hours worked to determine the regular hourly rate of pay for that work week, or $9.09 an hour. In this example, the office worker actually earned $9.09 an hour straight time rate for all the hours including the hours worked in excess of forty (40) hours. To comply with the fluctuating work week exception, the employer must also pay the employee the .50 time rate for all hours worked in excess of 40. In this example, the amount of overtime hours worked is 15. Note that the overtime rate is a “time and a half rate” and the employee in this example has already received the “time rate” and is now due the “half rate” for the overtime hours worked in excess of 40. So, the employer divides the $9.09 rate in half ($4.55 an hour) and then multiplies the half rate by the 15 overtime hours worked, or $68.25 ($4.55 an hour x 15 hours = $68.25). The employer then pays the employee an additional $68.25 gross wage for the 15 hours overtime worked in the work week for a total gross wage of $568.25.
It is important to always remember that that the regular rate of pay calculation can go all the way down to the minimum wage ($7.25), but no lower. Also, the additional half-time pay cannot be included as part of the fixed salary and must be paid for all hours in excess of 40 that are worked in any week. Continuing with the example of a fixed salary of $500.00 a week, in order to qualify for the fluctuating work week exception, the most the employee can work in any particular week is 68 hours ($500.00 divided by $7.25 an hour = 68.96 hours). Care must be taken not to set the fixed salary and/or the number of hours which can be worked in a particular week to produce a regular rate below the federal minimum wage.
Proper use of the fluctuating work week exception may be a good way to provide a benefit to employees and reduce an employer’s risk of extensive overtime pay. Care has to be taken that all provisions of the fluctuating work week exception are followed and include written policies which evidence a clear understanding between the employer and employee that this method of compensation is being used. Finally, never allow the fixed pay rate and/or the weekly hours worked reduce the employee’s regular pay rate below the federal minimum wage.
Special thanks are due to Hugh Coleman for his contributions to this article.