Employers often misconstrue the terms “non-exempt employee” and “hourly employee,” leading them to believe the terms are interchangeable. But, not all non-exempt employees are necessarily hourly employees. The Fair Labor Standards Act (FLSA) allows employers to pay their non-exempt employees on a salary basis as long as they meet minimum wage and overtime mandates. Paying certain non-exempt employees on a salary basis may prove a useful tool as healthcare institutions weigh changes in employee compensation practices necessitated by new FLSA regulations (previously discussed).

As set forth in DOL regulations, there are several ways in which an employer can pay non-exempt employees a salary and any necessary overtime. One such way, and the focus of this post, is the fluctuating workweek method (“FWW Method”).

The FWW Method is unique in that it allows an employer to pay only a half-time (50 percent) overtime rate for hours worked over 40 in a workweek (rather than the regular one-and-one-half overtime rate), if certain conditions are met. These conditions are outlined at 29 C.F.R. § 778.114 and are summarized as follows:

  1. The employee’s hours fluctuate from workweek to workweek;
  2. The employee receives a fixed salary that does not vary with the number of hours worked during the workweek (excluding overtime premiums);
  3. The fixed amount is sufficient to provide compensation every workweek at a regular rate that is at least equal to the minimum wage;
  4. The employer and employee share a “clear mutual understanding” (i.e., advance notice to the employee) that the employer will pay that fixed salary regardless of the number of hours worked; and
  5. The employee receives a fifty percent (50%) overtime premium in addition to the fixed weekly salary for all hours worked in excess of 40 during the workweek.

Here is a chart of the DOL’s own explanation of the FWW Method, illustrating how it works in practice:

Click here to view image.