Wage and hour disputes remain a continuous thorn in the side of many employers. According to the Fair Labor Standards Act (FLSA), there are two methods federally approved to determine a salaried employee’s “regular rate” of overtime pay. Aside from exempt salaried employees, employers must choose to pay either a fixed or fluctuating workweek salary, with additional caveats for any hours worked over 40 hours. Employers should select their option based on the needs of the company as well as the laws in their state.
What Is the Difference?
Under the traditional fixed salary workweek method, an employee works the same amount of hours and earns the same paycheck every pay period, as well as “time-and-a-half” — 1.5 times the normal hourly rate — for all hours worked over 40 in the workweek. Alternatively, under the fluctuating workweek (FWW) method, an employee earns the same rate of pay regardless of hours worked.
The salary for an FWW employee is the same each week, whether the employee works 20 or 50 hours. This fluctuation creates variations in overtime pay rates, because the hourly rate of pay changes based on the number of hours worked. Additionally, FWW salaries include the “time” part of “time-and-a-half,” making employers responsible only for the “half.” Basically, for all hours worked over 40, employees are due only one-half of the average hourly rate.
The FWW option is mutually beneficial to all parties involved. Employers can often reduce labor costs and create an effective and efficient workforce. Employees enjoy the FWW method because a fixed income with fluctuating hours enables more stable monthly financial budgeting.
Although the idea of the fluctuating workweek is reasonably straightforward, complications arise from compliance issues regarding the “regular” rate of pay for nonexempt employees not paid on an hourly basis. Four states (Alaska, California, New Mexico, and Pennsylvania) prohibit employers from using FWW altogether. To date, the other states either have not addressed FWW, or they allow its usage. If an employer opts for FWW, there are additional compliance requirements. These are:
The employee’s hours must fluctuate above and below 40 hours; and
There must be a clear and mutual understanding between the business and the employee about the payment method.
The Bottom Line
Regardless of the chosen methodology, an employer should adhere to the guidelines of their salary option to the best of their ability, and they should attempt to promptly rectify any payroll errors. This area continues to see a high rate of litigation, resulting in the development and clarification of laws. If you have questions regarding proper pay, it is best to consult an Illinois labor law attorney for up-to-date and case-specific answers. Attorney Richard J. Miller can help you design a compliant fluctuating workweek salary plan or resolve a compliance dispute. Call 847-995-1205 to schedule your free consultation today.