By Lisa Nagele-Piazza, J.D., SHRM-SCP
November 5, 2019 - SHRM
The U.S. Department of Labor (DOL) released its anticipated proposal to cover more workers and provide employers with greater flexibility under the fluctuating workweek method of calculating overtime pay.
The administration is reverting to a similar proposal from 2008 that was not adopted by President Barack Obama's administration, noted Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C., and former administrator of the DOL's Wage and Hour Division.
The fluctuating workweek method can be used under the federal Fair Labor Standards Act (FLSA) to calculate overtime pay for salaried nonexempt employees who work hours that vary each week. The proposed rule would allow employers to pay bonuses and other incentive-based compensation to employees under this method.
"The DOL is doing a good job of removing ambiguities and confusion for both employers and employees on compensation," said Hagood Tighe, an attorney with Fisher Phillips in Columbia, S.C. "This is good for everyone."
This method of compensation requires weekly calculations, he said, and employers should carefully audit themselves to be sure that these calculations are prepared properly.
How the Method Works
Under the fluctuating workweek method, employees who are entitled to overtime pay receive a fixed weekly salary, which is divided by the actual number of hours an employee worked in the week to determine the week's base hourly rate. The employees will then receive an additional 0.5 times their base rate for each hour worked beyond 40 in the workweek.
This is an alternative to the FLSA's regular method of calculating overtime pay, under which employees are paid an hourly rate and receive 1.5 times that rate for overtime hours.
To use the fluctuating workweek method, employees' hours actually have to change on a week-to-week basis and employees must receive the fixed salary even when they work less than their regularly scheduled hours. Additionally, there must be a clear mutual understanding between the business and employees about how workers are paid.
Not Allowed in Some States
"As always, employers should be mindful of state law," said Susan Harthill, an attorney with Morgan Lewis in Washington, D.C., and former DOL deputy solicitor. Some states, including Alaska, California, New Mexico and Pennsylvania, prohibit employers from using this method to calculate overtime pay.
Some courts and worker advocates argue that the method is used to shortchange workers. For example, in a Pennsylvania lawsuit, the National Employment Law Project argued that the federal method "injures workers and their families and is inconsistent with the public policy underlying Pennsylvania's overtime mandate."
The Connecticut Supreme Court invalidated the method in 2017, holding that employees must be compensated at a rate of 1.5 times their regular rate of pay for all overtime hours.
Proposed Changes
Employers who can use the method will receive some clarity if the DOL's proposed rule is finalized.
In the past, there has been confusion about whether employers could give a bonus, incentive or other extra payment to someone who is paid using the fluctuating workweek method, Tighe explained, noting that some courts have not permitted the practice. Once finalized, employers will be able to provide bonuses and other extra compensation to employees who are paid under this method.
The halftime premium for overtime hours would have to be paid on these additional forms of compensation, Robinson noted.
The DOL also plans to provide examples and revise some language to make the rule easier for employers to understand. In recent years, some courts have differentiated between hours-based premiums, such as those paid for working night shifts and productivity-based bonuses, such as commissions. Some courts held that productivity-based bonuses were allowed under the fluctuating workweek method but hours-based premiums were not.
"That became somewhat of an artificial distinction," Robinson said. "This rulemaking will eliminate that distinction so that any of these payments would be permissible, so long as the overtime premium is paid."
Consider Commenting
The proposed rule will be published in the Federal Register Nov. 5, and interested members of the public will have 30 days to submit comments.
"The department especially welcomes information from employers, employer organizations, employee organizations or payroll processors who may have unique insight into employees paid under the fluctuating workweek method," according to the proposal.
"As with most rulemaking, I think it's important for the DOL to hear from employers who use this methodology," Robinson said.
Harthill said employers may want to ask the DOL to further clarify what "additional pay of any kind" means and to submit comments about the additional types of pay for which they would like assurances about compatibility with the fluctuating workweek method.
Employers that wish to comment on the proposal may do so by visiting www.regulations.gov and searching for rulemaking docket RIN 1235-AA31.