Last week, we discussed the fluctuating workweek method and its possible benefits. Remember that the fluctuating workweek method is not a "save lots of overtime expenses method." Employers who use the fluctuating workweek to clamp down on overtime expenses often end up shifting those expenses from the payroll budget to the litigation budget.
A couple of readers asked me to identify some additional areas where the fluctuating workweek would not be available to you. We talked about one potential problem last week:
Common Mistake #1: The employee’s work schedule does not actually fluctuate from week to week.
As I said in my previous post, the federal regulations are not clear about how often or how much an employee’s hours worked need to dip below 40 in a week, but just like rounding, the fluctuating workweek method must at times work in your employee’s favor sometimes. This applies to scheduling, too. If your employee is always (or almost always) scheduled for 40 hours and any “variance” amounts to an hour or two here and there, that is not likely going to be enough.
But this isn’t the only potential pitfall for employers.
Common Mistake #2: The employee works fewer than 40 hours and is not paid the fixed salary.
This one should be easy. A salaried, non-exempt employee should receive, well, a salary. The fluctuating workweek method specifically requires that the employer pay a fixed salary each week that does not vary based on the number of hours worked.
Common Mistake #3: The employee receives shift pay, holiday pay, commissions, or some other additional compensation.
The fixed salary requirement in the fluctuating workweek method doesn’t allow for an exception when you pay extra compensation to your salaried, non-exempt employee for work they perform. Just like you cannot deduct from the salary if your employee works fewer than 40 hours, you cannot add to the salary by way of shift differentials, “double time” pay for Sunday or holidays, or commissions. If you want to do these things, you can, but then the employee no longer has a “fixed” salary. Without a fixed salary, you will then have to use the standard overtime calculation method we have discussed in the past for salaried, non-exempt employees, including those who also receive commissions.
Common Mistake #4: You have no “clear mutual understanding” with your employee.
In my last post, I mentioned that a complete lack of communication between you and your employee regarding the use of the fluctuating workweek method is obviously a problem. A “clear” understanding requires something written in plain English. Burying it in small-print legalese makes it difficult to establish a “clear” understanding. The understanding should be “mutual,” too. A signed document that expresses the mutuality of your understanding might not be enough. Take the time to explain what a “fluctuating workweek” means to your employee. Your signed document is stronger if you can represent that you discussed what it means with every worker as a matter of course.
Common Mistake #5: The employee works so many hours in a week that the rate falls below minimum wage.
In my example last week, Chuck made $1000 per week. What if his salary was just $400 per week? Working 50 hours a week is still okay, at least under the FLSA (but see my next Common Mistake below), because Chuck’s effective rate is $8.00/hour. But, what happens if Chuck works 60 hours one week? In that situation, Chuck would only earn $6.67/hour, well below the $7.25 federal minimum wage. If this happens, you have undermined your ability to use the fluctuating workweek calculation, and created wage and hour problems for your business.
Common Mistake #6: State law provides a different minimum rate.
If Chuck works 50 hours per week for $400, you don’t have a problem under the FLSA. However, if you have been following me on Twitter, you know that many states and localities have set (or are considering) higher hourly rates. $8.00 per hour would not fly in Michigan, Florida, Illinois, Massachusetts, or Montana, just to name a few, or in dozens of cities and towns that have set higher rates. Stay abreast of your state and local laws, and actively monitor the effective hourly rates of employees on the fluctuating workweek method.
Common Mistake #7: State law prohibits the fluctuating workweek.
While some states, like Washington, have explicitly embraced the fluctuating workweek method, many state courts have not taken any position on its legality. Conversely, in other states, including California, Missouri, New Mexico, and Pennsylvania, courts and legislators have taken the position that the fluctuating workweek method is inconsistent with state minimum wage laws. In those states, the FLSA’s fluctuating workweek is unavailable to employers. Check your state wage and hour laws carefully, and check with us if you have any questions before you start implementing this method.