I am asked many times by clients whether they should put workers on a fluctuating work week (FWW) arrangement, as a method of providing income stability and also to lower the overtime costs if that person works overtime.  This is a nuanced device and if the employer does not implement it correctly, the employer may well end up increasing its overtime costs instead of lowering them.  One issue that often arises is whether the hours must fluctuate above and below 40 hours per week to qualify for the fluctuating workweek method of calculating overtime pay set forth at 29 CFR 778.114 or if the hours must fluctuate only above 40 hours per week.

An employer may place an employee on a fluctuating workweek arrangement if all five conditions are satisfied:

  1. The employee’s hours of work fluctuate from week to week;
  2. The employee receives a fixed salary that does not vary with the number of hours worked;
  3. The amount of the fixed salary is sufficient to satisfy the applicable minimum wage rate for every hour worked in those workweeks;
  4. The employee and the employer have a clear and mutual understanding that the fixed salary is compensation for the total hours worked each workweek regardless of the number of hours; and
  5. The employee receives compensation for all overtime hours worked at a rate of not less than one-half the employee’s regular rate of pay for that workweek.

One issue that arises is whether the employee’s hours must fluctuate above and below the statutory overtime threshold (forty) in order for this to be a legally proper payment plan. The USDOL has opined that this need not occur.  The agency has noted that “the plain language of the regulation makes clear that there is no requirement that an employee’s hours vary both above and below 40 per week to come within the rule; it requires only that the employee’s hours fluctuate from week to week.”  The agency has confirmed this belief in a number of its Opinion Letters (which, as a general matter, I find very informative and useful in guiding clients).

Also, and this is crucial, employers placing employees on a fluctuating workweek plan are not allowed to make deductions from the salary for employee absences, such as sick days, etc.  The pertinent regulation makes clear that the FWW employee be paid a “fixed salary that does not vary with the number of hours worked in the workweek.”  This prohibits these kinds of deductions.  Thus, even is a FWW employee has used up all of his sick leave or not yet accrued enough to take a “paid” sick day, the employer must nevertheless pay that employee his full salary for the week.  There is a small exception to this rule—disciplinary deductions are allowed for so-called willful absences or infractions of major work rules.

The Takeaway

I have said many times that the FWW payment method for salaried non-exempts is a good device for the employer because it does cut down on overtime costs. There are landmines out there for the unwary employer and failure to dodge them may well increase, rather than decrease, potential liability.

Follow the rules…