Fluctuating workweeks and proper compensation

March 26, 2018

By Michael Burns, courtesy of SBAM Approved Partner ASE

When an employee’s workweek fluctuates above and below 40 hours, employers need to understand what they can and cannot do when it comes to payment of wages and overtime. Wage and Hour regulations address employee work hours that fluctuate above 40 hours in a week. When weekly work hours exceed 40, overtime pay at time and one-half is due. However, in a fluctuating work week situation the overtime rate can fluctuate along with the regular rate.

The chart below shows how a weekly salary of $1,000 can vary week to week under the fluctuation workweek method:

In a recent federal court case from the Southern District of New York, the court addressed three fluctuating workweek questions:

Do isolated pay deductions undermine the fixed salary requirements of wage and hour regulation? During the course of employment defendant-employers had made deductions from pay for certain absences potentially violating the fixed salary wage and hour rules. Upon discovering the rule violation, the employer corrected it. The court held these breaches to be one-offs, and therefore, did not preclude the employer from using the fluctuation workweek method of overtime payment.
Must the employee’s hours fluctuate above and below 40 hours? The plaintiff-employees argued their hours never dropped below 40, though often fluctuated above 40 hours. The court stated that this method only requires hours to vary week to week and does not have to fluctuate above and below to allow for use of the fluctuating workweek method.
Do employees have to subjectively understand the overtime pay calculations for there to be a mutual understanding that the fixed salary was intended to cover all hours worked at straight time? The fluctuating workweek method requires the employer to communicate and the employee to agree to the fluctuating workweek method. In this case the employer had each employee sign an acknowledgement form describing the fluctuating workweek method. Though the employees did not dispute receiving and agreeing upon the method in the document, they did try to argue that they really did not understand it. The court didn’t care and said lack of understanding is irrelevant. The test is “whether the employee knows they will be paid on a fixed salary basis regardless of hours worked.”