By Janell Stanton, HR & Employment Attorney, Compliance Center
Last week in part 1 of my article on the fluctuating workweek method of paying salary, I discussed what it was and how it worked. In part 2, I’m going to point out some reasons many employers run afoul of the law using this method.
First, an employer must comply with the rules in the FLSA for using this method:
- here must be a clear, mutual understanding that the employee's fixed salary will cover all hours worked in a workweek, even if a small number of hours are worked. (preferably in writing)
- The employee must be paid a fixed weekly salary considered straight-time compensation for all hours worked in a workweek if the employee performs any work in the workweek.
- The employee's hours must fluctuate from workweek to workweek.
- The regular hourly pay rate used to base the half-time overtime rate must not fall below federal minimum wage regulations.
There are lots of potential mistakes here, from not being on the same page as your employee about this method, to deducting for hours worked less than 40 per week, to having the overtime rate fall beneath minimum wage. However, the biggest issue is probably #3. While it seems obvious from the name ‘fluctuating workweek method’, it is a point that many miss. The employee’s workweek must actually fluctuate from week to week. An hour or so fluctuation is not likely enough. Also, if the employee almost always works at least 40 hours per week, you are very likely in violation of the FLSA.
Second, not all states allow this method of payment. For example, California unsurprisingly does not allow use of this method. Neither do Alaska or New Mexico. A surprising number of other jurisdictions (16) have not yet resolved whether or not this method is allowed or not. If an employer is using this in a state where it isn’t allowed, the employer is in violation of state law. Or, if the employer is using it in a state where the question has not yet been resolved and the state clarifies that it is prohibited, then that employer could be liable for a substantial amount in damages.
Third, sometimes employers want to give employees that work holiday or weekend shifts some extra pay. Or, perhaps the employer pays a shift differential or a bonus for hours worked. This violates the fixed salary portion of the requirements and invalidates the use of this method, subjecting the employer to penalties for FLSA violations.
Finally, while the DOL has permitted the use of this method, they quite frankly don’t like it. Accordingly, don’t expect the DOL to cut you any slack if there is a tiny slip up. The DOL feels that this method could be used to the detriment of the worker. As has been evidenced by the increase of regulatory activities by the DOL and other agencies, employers should make sure there are absolutely no missteps when implementing this method. Reach out to your trusted Employment Law council should you find yourself taking steps down this path.
Our partner attorneys and HR professionals at the Flores HR Compliance Center can help ensure your policies are up to date, advise on the best practices for conducting thorough investigations, and guide companies through performance management and termination decisions. To learn more about this Flores service offering, reach out to your Flores Account Manager or Business Development Director, or contact us.
The information presented in this post is current as of the publication date. The information included does not constitute legal advice.