I have long been a fan of the fluctuating work week (FWW) method of paying overtime to non-exempt salaried employees. This computation yields a half-time calculation, i.e. a lower calculation than dividing the salary by forty and then calculating time and one half of that number. The Pennsylvania Supreme Court has recently held that this computational method does not apply in Pennsylvania. Thus, employers in that jurisdiction paying non-exempt employees a salary must use the more generous method of overtime calculation for these workers. The case is entitled Chevalier v. Gen. Nutrition Ctr., Inc., and issued from the Supreme Court of Pennsylvania.
The FWW method of paying non-exempt employees, codified at 29 CFR 778.114, allows an employer to pay this half-time overtime when employee hours fluctuate from week to week. There must be an agreement in advance of the work being done that provides that the fixed salary will be straight time pay, without regard for the hours worked and then the overtime is computed at half the regular rate for that particular week, depending on the hours worked in that week. In that regard, many courts have used this method of calculating overtime in misclassification cases and I know, from considerable experience representing employers in DOL audits (more than 300 of them) that the agencies, state and federal, will undertake this calculation as well.
The class here was a group of non-exempt store managers paid a fixed weekly salary (and commissions). When they worked overtime, the employer used the FWW method. The employer computed the “regular rate” by dividing the manager’s fixed weekly salary by the actual number of hours worked, and then paid half-time overtime, after doing the math. Plaintiff contended this was incorrect under state law. The Court agreed.
The Court held that the employer could not avail itself of the FWW method, but had to pay these salaried non-exempt employees time and one half of their regular rate for overtime hours. The Court relied on Pennsylvania state law and regulations that state that each “employee shall be paid for overtime not less than 1-1/2 times the employee’s regular rate of pay for all hours in excess of 40 hours in a workweek.” The Court also concluded that since the state DOL did not adopt the FWW method of overtime payment. That fact, combined with the import of the state regulations, showed that the FWW method was not allowable under Pennsylvania state law.
This decision shows the dichotomy or tension between federal and state law. Under the FLSA, this method of paying overtime is legal (assuming the agreement with the employees has been implemented). The danger for employers is that they must always examine both federal and state law on any wage-hour issue, especially such an important one as proper overtime payment, when implementing compensation issues. Compliance with one set of laws does not mean the particular policy is legal under another body of law.
Employers should be guided accordingly…