Fluctuating Workweek and FLSA Compliance

The premise of Fluctuating Work Week (FWW) is that the salaried *Non-Exempt employee receives a guaranteed salary each pay period regardless of hours worked.  As the salary is constant but the number of hours worked varies, it causes a fluctuating hourly rate.  (Salary divided by total number of hours worked determines hourly rate weekly).

Because the fluctuating hourly rate takes into consideration all hours worked, you can assume that the employee was already paid straight time for all hours worked.

Therefore, the employee is only owed the remaining half time of their hourly rate of pay as overtime for each hour worked over 40 in that work week.

This method allows for the employee to receive a fluctuating lower regular rate of pay the more hours worked. That is until the employees pay falls below the required minimum wage. Then the FWW cannot be used and the employee must be paid per Fair Labor Standards Act (FLSA) minimums.

There are six basic requirements the employer must follow to utilize a FWW under the FLSA:

• The employee must receive a guaranteed salary for each work week regardless of how many hours they work and it must comply with minimum wage requirements as calculated on a forty-hour work week. Federal regulations require the salary be large enough that it never results in a regular rate of pay below minimum wage taking into account all hours worked.
• The employee must receive 0.5 times regular rate of pay of at least minimum wage for each hour worked in a work week over 40.
• Where State and Federal minimum hourly rates differ, the hourly and OT rates must be adjusted to comply with the more generous hourly and OT rate between the two.
• The employer must get consent from the employee that they understand the utilization of the FWW calculation. While it is not required that the agreement be in writing, employers should have and are encouraged to have some proof of mutual agreement.
• The employee’s work week must actually fluctuate in the number of hours worked to utilize the FWW. Employers may not put all employees on a FWW to avoid paying what may be higher overtime wages. While federal regulations do not specify how much a work schedule must fluctuate, the courts and the Labor Dept. suggest there needs to be fluctuation that is probably beyond what most employees experience. A few hours of fluctuation may not be enough. A good acceptable example might be a ski resort employee who works 55 hours a week during the winter, but may work 30 during the summer.
• Under the federal regulations, an employee receiving pay under FWW calculation cannot receive other forms of compensation, such as bonuses, commissions or holiday pay, as part of the fixed salary or above the fixed salary. Those additional forms of compensation are evidence that the employee’s pay is not fixed.

Example:

Weekly Salary Rate	Number of hours worked	Hourly Rate (salary / number of hours worked)	Number of OT hours	½ Hourly rate for OT	OT wage owed	Total Earnings (salary + OT)
$400	32	$12.50	0	0	0	$400
$400	43	$9.30	3	$4.65	$13.95	$413.95
$400	49	$8.16	9	$4.08	$36.72	$436.72
$400	58	$7.25**	18	$3.625** ($7.25 / 2)	$65.25	$420.50 + $65.25 = $485.75

** Federal minimum wage is $7.25 / hour hence the hourly rate must be adjusted to meet with FLSA assuming the State minimum wage is not higher.

Before you go down this path we encourage you consider if this level of complexity really makes good business sense.  If not, seek HR feedback or suggestions to help your business find a simpler, easier to follow solution.

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