The Fluctuating Work Week for salary employees is one of the options being considered as businesses work on understanding the new Over Time Rules for salary employees and adjustments to accommodate compliance. The Labor Dept. does allow for use of the Fluctuating Work Week to pay salary employees, but there are some important requirements that employers have to seriously consider if they plan to go that route.
What is the Fluctuating Work Week (FWW)?
Here’s how FWW works. Under a FWW calculation, it is important to note that the salary employee receives a guaranteed salary each pay period regardless of hours worked. The employee then also receives half of their regular rate of pay as overtime for each hour worked over 40 in that work week. So the employee will receive the required half time for OT, but the FWW 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.
For example, if the employee earns a salary for $400 per week and works 40 hours, they are earning $10/hr. If they work 45 hours, they are earning $8.88/hr and the additional OT earnings would be $4.44 for those 5 hours. (Total earnings for the week = $422.20.). If they work 50 hours in the week, the employee would be earning $8/hr or $4 for each OT hr. (Total earnings for the week = $440. Note that if the employee was hourly and working for $10/hr, their earnings for the 50 hour week would be $550.00.) If that same employee worked 60 hours in a week, their rate of pay would be reduced to $6.66/hr which is below minimum. This would disqualify the use of the FWW.
The FWW is a way of paying employees a salary plus overtime pay, creates similar paychecks pay period to pay period and allows the employer to pay less in overtime pay than the usual hourly overtime calculation of one and a half times the rate of pay. Thus for the employer it can reduce overtime expense and result in more stable and thus predictable labor costs. While at times the employee earns less money when they work OT than if they worked on an hourly wage basis, it does create a situation where they earn a guaranteed amount when they work less than 40 hours in a week. This is where one of the requirements come into play.
There are five 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 employer must get consent from the employee that they understand the utilization of the FWW calculation. Note, while the Labor Dept does not require the agreement to be in writing, employers should 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.
- 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.
- 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.
As you can see, while the FWW may sound like a viable option, it does have to be carefully analyzed to make sure it will comply with the FLSA. If it is utilized, it must be carefully managed. If after analysis you decide a FWW will work for you, keep in mind that because of the powerful tools Time & Pay utilizes to manage our customers payroll, we are one of the few payroll services in the area that can help you easily manage the process and make sure you stay in compliance.
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