U.S. DOL Issues Proposed Regulations Addressing Fluctuating Workweek Schedules and Overtime

By Michael Burns, courtesy of SBAM Approved Partner ASE

On November 4, 2019 the U.S. Department of Labor (USDOL) announced it would revise its fluctuating workweek rules. These rules apply to a fairly narrow segment of the total U.S. labor force. The revised rule would apply to salaried non-exempt employees whose hours vary each week.

The DOL estimates the number of fluctuating workweek employees that are paid on a salaried basis at just over 720,000. Another 675,000 may “usually” work a set number of hours but may routinely differ from that schedule and would also fall under this rule. Total U.S. workforce is about 160,000,000. This is not a large segment of the workforce.

That said, the modern workplace continues to trend toward more flexibility. How to fairly pay workers in these variable hours schedules and incentivize pay has been a challenge to employers.

Regardless of the number affected, the question of how to calculate overtime including bonuses, premium, and pay of any kind falling into the definition of non-discretionary pay has resulted in confusion, an excess of wage and hour violation activity, as well as a variety of inconsistent court rulings.

What workers are covered by this proposed rule?

(a) The fluctuating workweek may be used to calculate overtime compensation for a non-exempt employee if the following conditions are met:

(1) The employee works hours that fluctuate from week to week;

(2) The employee receives a fixed salary that does not vary with the number of hours worked in the workweek, whether few or many;

(3) The amount of employee’s fixed salary is sufficient to provide compensation to the employee at a rate not less than the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours the employee works is greatest;

(4) The employee and the employer have a clear and mutual understanding that the fixed salary is compensation (apart from overtime premiums and any bonuses, premium payments, or other additional pay of any kind not excludable from the regular rate under section 7(e)(l) through (8) of the Act) for the total hours worked each workweek regardless of the number of hours; and

(5) The employee receives overtime compensation, in addition to such fixed salary and any bonuses, premium payments, and additional pay of any kind, for all overtime hours worked at a rate of not less than one-half the employee’s regular rate of pay for that workweek. Since the salary is fixed, the regular rate of the employee will vary from week to week and is determined by dividing the amount of the salary and any non-excludable additional pay received each workweek by the number of hours worked in the workweek. Payment for overtime hours at not less than one-half such rate satisfies the overtime pay requirement because such hours have already been compensated at the straight time rate by payment of the fixed salary and non-excludable additional pay. Payment of any bonuses, premium payments, and additional pay of any kind is not incompatible with the fluctuating workweek method of overtime payment, and such payments must be included in the calculation of the regular rate unless excludable under section 7(e)(1) through (8) of the Act.

(b) The application of the principles in paragraph (a) of this section 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 work hours 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 (apart from overtime premiums and any bonuses, premium payments, or other additional pay of any kind not excludable from the regular rate under section 7(e)(1) through (8)) for all hours worked in the workweek.

(c) Typically, the salaries described in paragraph (a) of this section are paid to employees who do not customarily work a regular schedule of hours and are in amounts agreed on by the parties as adequate compensation for long workweeks as well as short ones, under the circumstances of the employment as a whole. Where the conditions for the use of the fluctuating workweek method of overtime payment are present, the Act, in requiring that “not less than” the prescribed premium of 50% for overtime hours worked be paid, does not prohibit paying more. On the other hand, where all the facts indicate that an employee is being paid for overtime hours at a rate no greater than that which the employee receives for non-overtime hours, compliance with the Act cannot be rested on any application of the fluctuating workweek overtime formula.

Because this is a proposed rule, it will go through the standard notice and 30-day comment period for regulatory adoption. Comments can be submitted electronically at the Federal eRulemaking Portal – https://www.regulations.gov or by mail to:

Division of Regulations, Legislation and interpretation, Wage and Hour Division (WHD)
U.S. Department of Labor, Room S-3502
200 Constitution Avenue N.W.
Washington D.C. 20210

Submissions must include the agency name and the Regulatory Information Number (RIN) 1235-AA31.

Source: US DOL Proposed Rules – Fluctuating Workweek Method of Computing Overtime 29 CFR Part 778 (11/5/2019) Law 360 DOL Floats Fluctuating Workweek, Vet Health Care Rules (11/5/2019)