The technical requirements for paying overtime pursuant to the fluctuating workweek method set forth in 29 C.F.R. § 778.114, can be confusing. The regulation, for example, discusses an employee and employer having a clear mutual understanding that overtime will be paid pursuant to the fluctuating workweek (FWW) method. In a new decision analyzing the FWW method, Judge Paul Oetken of the United States Federal Court for the Southern District of New York concluded the necessary understanding between the employer and employee  had been reached, after analyzing an employee’s historical compensation and the parties’ understanding thereof. Stein v. Guardsmark, LLC, 2013 U.S. Dist. LEXIS 103131 (S.D.N.Y. July 23, 2013).

In Stein, a longtime executive assistant who was paid pursuant to FWW brought an overtime claim asserting there was no understanding that she was to receive the “half time” overtime due under the FWW calculation. Observing that “a clear and mutual understanding may be shown through examination of the employment agreement and the employee’s actions,” and that the understanding set forth in the FWW regulation requires only an understanding “that the fixed salary is compensation (apart from overtime premiums) for the hours worked each workweek, whatever their number, rather than for working 40 hours or some other fixed weekly work period,” Judge Oetken rejected Plaintiff’s repudiation of the “understanding.” Noting that Plaintiff received an offer letter setting forth her compensation as well as an earnings statement every pay period, and that she had corresponded with various managerial and HR employees about her compensation, including the calculation of overtime, without objection, the Court ruled that her assertion that she did not fully understand the mechanics of the FWW method could not create a question of fact as to the understanding between the parties. 

Payment of overtime pursuant to the FWW method remains an authorized, compliant method of paying overtime under the FLSA and many state laws, but employers must ensure compliance with all federal and state law requirements and consult with counsel as appropriate.