Our April 27 post gave an example of how to reduce the financial impact of a previously-exempt employee's becoming subject to the federal Fair Labor Standards Act's overtime requirement.

The illustration had to do with the implementation of a "fluctuating workweek" plan.  This has raised a follow-on question about whether similar cost-control measures are available for other compensation methods.

The answer is that they are.

A Salary For 40 Hours

For instance, assume that management decides to pay an employee a fixed weekly salary representing straight-time compensation for her hours worked up to 40 in a workweek.  Assume also that her weekly salary as an exempt employee was $800, and that she typically works 50 hours in a workweek.

If the employer sets her new weekly salary at $580, then, in a workweek in which she works exactly 50 hours, the total FLSA-complying amount for that workweek is:

($580 ÷ 40) = $14.50 Regular Rate

[($14.50 × 1.5) × 10 OT hrs.] = $217.50 OT Compensation Due

($580 + $217.50) = $797.50 Total FLSA Wages.

Of course, under this approach, her total wages would be lower if she had worked, say, 45½ hours in the workweek; they would be higher if she had instead worked 52¾ hours in the workweek.

Payment By-The-Hour

In the above hypothetical, a similar outcome would result from the employer's deciding to pay the employee on a strictly by-the-hour basis at an hourly rate of $14.50.

The fundamental difference in the hourly approach is what the employee would receive for a workweek in which she works less than 40 hours, such as 35½ hours.  Under the salary-for-up-to-40 method, the arrangement calls for paying her the fixed weekly amount of $580.  But by-the-hour pay would result in lower wages of ($14.50 × 35½ hrs.) = $514.75.

Naturally, management must weigh the potential financial advantages of a by-the-hour approach against the possible employee dissatisfaction that the plan might provoke.

The Bottom Line

Employers can also take cost-control concerns into account in establishing other alternatives.  But remember that, under any method designed to comply with the FLSA's general overtime requirement, the employer:

  • May not adjust a fixed salary or an hourly rate from workweek-to-workweek or in each pay period to "back into" a projected amount of compensation;
  • May not simply assume that the employee has worked the same number of hours each workweek;
  • Must instead accurately capture and record all of an employee's hours worked in a workweek and must compute and pay compensation on the basis of those actual hours worked; and
  • Must be sure that the plan also complies with the applicable requirements of other wage-hour laws.