Understanding DOL's Opinion on Fluctuating Workweeks and Overtime Compensation
Many employers were confused over the Department of Labor's (DOL) position on time-and-a-half-pay and employees whose work hours fluctuated from week to week. As a result, the DOL issued an opinion letter at the end of August to clear the air about how the fluctuating workweek method of calculating an employee's overtime works. This is an important opinion that employers should read closely and follow so that they remain compliant with overtime regulations.
The Fluctuating Workweek
Many employees, including overtime-eligible salaried employees, have hours that change from week to week. This makes calculating overtime a challenge for any employer. The fluctuating workweek method of calculating fair compensation under the FLSA helps make it easier. This method requires employers to compensate these salaried workers at a rate that is at least 50% of the individual's regular hourly rate of pay for any hours worked in excess of 40 hours in a given week.
The trade-off to not paying time-and-a-half pay is that employers are required to pay the employee a salary even in those weeks when they work less than 40 hours. For example, if an employee works 20 hours the first week of a pay period, and 45 the next, the employer must pay the worker's full salary for the first week + their full salary for the second week + half-pay for the additional 5 hours worked in the second week of the pay period.
Up and Down, All That Matters Is Fluctuation
DOL has clarified that it does not matter how much an employee's number of hours worked fluctuate in order to qualify for payment under the fluctuating workweek rule. It does not matter whether the employee is consistently above or below 40 hours per week. All that matters is that the individual's workweek fluctuates from week to week and that there is an established pattern of these fluctuations.
Further, DOL has reiterated that this calculation method only applies to eligible workers who receive a fixed salary. Employers who attempt to use this calculation method for hourly employees are negligent in their responsibility to pay those workers time-and-a-half pay. This is a severe violation of the FLSA, and employers shouldn't make the mistake of thinking they can get away with it by claiming they didn't understand the rules. DOL's letter is specifically targeted to quash this type of behavior.
In fact, the DOL reiterated their recommendation that all employers who choose to pay overtime rates using this calculation sign a written agreement with their employee that spells out in clear language how the method works so that there aren't any surprises or disputes when payday arrives.
The Fluctuating Workweek Method May Not Work for Every Business
This overtime calculation method can be an effective tool that business owners can use to manage labor expenses. It is ideal for some businesses whose employees have variable hours each week and are eligible for overtime compensation. Properly implemented, this overtime calculation option can result in significant savings while still offering fair and reasonable compensation for employees.
Concerned that you may be out of sync with the regulations that your business must follow? Contact Greenlink Payroll at (480) 385-2525 for more information about time-and-a-half pay and other requirements business owners should be on top of throughout the year.