Should Employers Use the Fluctuating Workweek Method?

The
fluctuating workweek method of calculating overtime pay can be a great tool for
employers, but it doesn’t work for all jobs or in all states.

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source: http://lkmaccounting.com/2016/05/25/new-overtime-rules-for-employees-what-you-need-to-know/

Under this method, employees
who are entitled to overtime pay receive a fixed weekly salary, which is
divided by the actual number of hours an employee worked in the week to
determine the week’s base hourly rate. The employees will then receive an
additional 0.5 times their base rate for each hour worked beyond 40 in the
workweek.

This is an alternative to the
Fair Labor Standards Act’s regular method of calculating overtime pay, under
which employees are paid an hourly rate and receive 1.5 times that rate for
overtime hours.

There will nearly always be
challenges when employers use an alternative method to calculate overtime pay,
according to Andrew Burnside, an attorney with Ogletree Deakins in New Orleans.

However, the fluctuating
workweek method is a great tool if the workplace supports it, he said in an
interview with SHRM Online.

Benefits

“The fluctuating workweek
method presents benefits for both employers and employees,” according to
Steven Ferenczy, an attorney with Fisher Phillips in Atlanta.

“For employers, the fluctuating
workweek method may help reduce labor costs as compared to an hourly basis of
pay and can create a more efficient and effective workforce,” he said.

The main benefit for employees
is that they will generally receive the same fixed pay even when they work less
than 40 hours in a particular week, he added.

Receiving a fixed salary can
help nonexempt employees with fluctuating hours plan for their monthly
expenses, Burnside said.

Compliance Issues

Employers need to be aware of
the additional compliance steps they must take when using this method as
opposed to the regular time-and-one-half calculation.

There are two primary
requirements, Burnside explained.

First, the employees’ hours
actually have to fluctuate on a week-to-week basis, and employees must receive
the fixed salary even when they work less than their regularly scheduled hours.

Second, there must be a clear
mutual understanding between the business and employees about how workers are
paid.

The agreement could be implied
if an employee works under a fluctuating workweek arrangement over a period of
time. However, Burnside said, the best practice is to have a written
agreement—ideally one that is presented to the worker at the start of
employment.

Melissa Siebert, an attorney
with BakerHostetler in Chicago, noted that some states prohibit employers from
using this method altogether.

Currently, Alaska, California,
New Mexico and Pennsylvania do not permit its use.

Siebert explained that some
states, such as California, have more stringent overtime payment laws that
require payment of daily overtime.

“These states, or courts
in these states, are less likely to allow the fluctuating workweek method
because they more heavily regulate overtime pay overall,” she said.

Other states haven’t addressed
the fluctuating workweek method at all.  "So it is not entirely clear
whether this method would be permitted,“ Siebert said.

She added that it’s a good
idea to have an attorney review the recent cases and any wage and hour statutes
in the specific states where the method would be implemented.

"Employers should know
that the risk inherent in the fluctuating workweek method may be the biggest in
states or court districts where it remains unsettled or unclear as to whether
the method is permitted,” she said.

Which Jobs?

Circumstances vary so much from
one employer and workforce to another and among different industries that it
really isn’t possible to generalize about the jobs for which this practice
works best, Ferenczy said.

“But as an example, this
method works well for transitioning employees who were previously treated as
exempt” who have become nonexempt, he added.

Siebert noted that some
employers implemented fluctuating workweek payment methods prior to December
2016, when the Department of Labor’s now-delayed overtime rule was scheduled to
take effect. 

“Generally, it has tended
to be more commonly used with well-paid employees who are eligible for overtime
and whose hours vary over the course of workweeks,” she added.

It is commonly used for
positions “we would think of as white-collar jobs where the employee might
well be eligible for overtime based on the job classification and for
highly-paid blue-collar jobs where overtime is fairly frequent and
varied,” Siebert explained.

“Another example might be
situations in which there are seasonal fluctuations in the amount of work to be
done,” Ferenczy said. “The fluctuating workweek method removes much
of the uncertainty and variation in pay that tends to occur with seasonal
fluctuation.”

As an example, Burnside said
this method may work well for landscaping employees. These employees might only
work a few hours one week because of rain and then they may work a lot of hours
the next week to make up for it when the weather is better.

Multistate
Employers

“The most important thing
for multistate employers to do is to ensure that they have a full understanding
of all of the potential state and federal laws that may prohibit or restrict
the use of the fluctuating workweek method,” Ferenczy said.

Employers must ensure that any
fluctuating workweek plan they adopt complies with the overtime laws of every
state and other jurisdiction in which it will be used.

“Moreover, it is important
for multistate employers to realize that some jurisdictions have other
requirements that may impact their use of the fluctuating workweek
method,” Ferenczy added.

These other laws may include
higher minimum wage rates, daily overtime requirements, restrictions on
paycheck deductions and more. 

Many
jobs today are typical nine to five positions, however many are not. Depending
on the field, it is not uncommon for businesses to have employees with various
schedules. It is important to keep in mind that all jobs and all states have
different rules and regulations. PA businesses especially need to make sure
they’re staying up to date since in Pennsylvania, this is not allowed. Converge
HR Solutions is a great resource to have, especially when it comes to staying
compliant with employment law. Visit our website for more information
visit https://convergehrsolutions.com/. Contact us directly at info@convergehrsolutions.com or 610-296-8550.

Article
source: https://www.shrm.org/resourcesandtools/legal-and-compliance/employment-law/pages/fluctuating-workweek-method-of-calculating-overtime-pay.aspx

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