The fluctuating work week (“FWW”) method of computing overtime is very misunderstood and, often, misused by employers. On that note, I read an interesting post in the Epstein Becker Wage and Hour Defense Blog on a recent Southern District of New York case that explained some of the more common issues related to this concept. The case is entitled Thomas v. Bed, Bath & Beyond and addressed several issues that I have long been interested in.

As the Epstein post notes, one issue was whether isolated deductions from wages undermine the fixed salary requirement. Another was whether the employee’s hours must fluctuate above/below forty hours for the plan to be valid. Another was whether employees had to understand the nature of the FWW calculations in order for there to be a “mutual understanding” that the lump-sum salary was designed to cover all hours worked for that week at the particular straight time rate.

Under the FWW method, the weekly salary (of non-exempt employees) covers all hours worked at straight time. If more than forty hours are worked, the employee receives additional half-time, based on the number of hours worked in that given week, after engaging in multiplication and division process. The regular rate will fluctuate every week, depending on the number of hours worked in that week. In other words, as the post points out, as the number of hours worked in a week increases, the regular rate goes down.

The plaintiffs alleged that they did not receive a “fixed weekly salary” because there were instances when their salaries were docked due to their absences. Although the Court acknowledged that an employer cannot effect deductions if it places employees on the FWW method of compensation, the Court adopted a utilitarian view and would not scuttle the agreements due to these isolated occurrences. Also, the Company reimbursed the workers for these deductions.

The plaintiffs also contended that their hours never dipped below forty per week, so the FWW compensation method was invalid. The Court turned this argument aside as well. The Court looked at the regulation on point (29 CFR 778.114) and held that the FWW payment method only mandated that the hours varied on a weekly basis and that the hours need not drop below the overtime threshold. This is quite important, doctrinally.

Lastly, and oddly, the plaintiffs claimed that they did not have a clear mutual understanding that they were on a FWW plan. This was odd because the workers had signed a form that set forth the terms of the FWW arrangement. That document also provided sample overtime calculations; they were also given annual notices about their FWW payment arrangement. Significantly, the Court held that the plaintiffs’ subjective lack of understanding of their pay plan was irrelevant, but the proper test was an objective one.

The Takeaway

This case is fascinating and I believe very instructive. I think it provides employers with a roadmap as to how they can and should structure a FWW compensation system for salaried non-exempt workers. As a general rule, most non-exempt employees are paid hourly, but they do not have to be, provided they receive overtime after forty hours. Some non-exempt workers like being “salaried” as that status gives them a white-collar “feel.”

So, good for the employer and, more importantly, employee relations…