Many of my clients are calling with questions about the new overtime regulations, which become effective on December 1, 2016. Those calls and a recent decision from the Eleventh Circuit Court of Appeals merit a discussion of the “fluctuating workweek” method of calculating overtime. See Garcia v. Yachting Promotions, Inc., No. 16-10095, 2016 WL 6276046 (11th Cir. Oct. 27, 2016). In summary, an employee with a fluctuating work schedule can be paid: (1) a fixed weekly salary; and (2) half-time (instead of time-and-a-half) as overtime compensation for all hours over 40.
This methodology should only be applied to employees who work irregular work hours. Most importantly, their hours must fluctuate both above and below 40 hours per week.
If an employee truly works a fluctuating workweek, then it is possible to pay them overtime at half-time rather than time-and-a-half. But, there are numerous requirements that must be satisfied. Critically, the employee must be paid a fixed weekly salary as straight time pay. The employee receives this amount if they work less than 40 hours in a week, or more than 40 hours. Additionally, the Department of Labor’s regulations provide:
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The employee clearly understands that the straight-salary covers whatever hours he or she is required to work;
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The straight-salary is paid irrespective of whether the workweek is one in which a full schedule of hours are worked;
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The straight-salary is sufficient to provide a pay-rate not less than the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours worked is greatest; and
- In addition to straight-salary, the employee is paid for all hours in excess of the statutory maximum at a rate not less than one-half the regular rate of pay.
In Lopez-Garcia, the issue was whether there was a clear mutual understanding between the employer and the employee to apply the fluctuating workweek methodology. “The employee does not have to understand every contour of how the fluctuating workweek method is used to calculate salary, so long as the employee understands that his base salary is fixed regardless of the hours worked.” Lopez-Garcia, 2016 WL 6276046 at *2. In Lopez-Garcia, the plaintiff possessed limited proficiency in English. Nevertheless, he signed a memorandum acknowledging his understanding of the fluctuating workweek, and he knew that he was a “salary employee who did receive overtime.” Id. Those facts were sufficient for the Court to find that the employee was properly paid under the fluctuating workweek method.
The Department of Labor is concerned that employers might attempt to use the fluctuating workweek methodology to limit overtime paid to employees — particularly employees who do not truly work a fluctuating schedule. Thus, application of this methodology should be approached very carefully. But, if you have employees whose schedule truly fluctuates over and under 40 hours per week, this is a potential alternative method for calculating overtime.