You’re likely familiar with the Fair Labor and Standards Act’s (FLSA’s) rules on overtime pay. But when you have employees who work varying schedules, you might be able to calculate overtime using the fluctuating workweek method.
Read on to learn more about a fluctuating workweek, restrictions, calculations, and how to implement it in your business.
What is a fluctuating workweek?
An employee who works a fluctuating workweek has a different amount of work hours from week to week. Employees who work fluctuating workweeks earn a fixed salary, regardless of how many hours they work per week. For example, the employee would earn the same weekly salary whether they worked 35 or 40 hours. Therefore, a salaried employee’s hourly rate varies depending on how many hours they work during one week.
Employees who work fluctuating workweeks might work more than 40 hours some weeks. You can calculate their overtime pay using the fluctuating workweek overtime method.
As a reminder, traditional overtime is time and a half (1.5) of an employee’s regular hourly rate. On the other hand, fluctuating workweek overtime is additional compensation of 0.5 times the employee’s hourly rate for each hour over 40 worked.
You can opt to pay more than the minimum fluctuating workweek overtime rate of 0.5.
Can you use the fluctuating workweek method?
Not all employers whose employees work fluctuating workweeks can use the alternative overtime method.
On May 20, 2020, the Department of Labor (DOL) released updates with the intention of simplifying who can use this method.
You can use the FLSA fluctuating workweek method to determine overtime if you meet all five of the following requirements:
The employee’s work hours fluctuate from week to week (no range requirements—work hours simply need to vary) The employee earns a fixed salary that does not vary based on the number of hours worked The employee’s hourly wage is always above the minimum wage (either federal or state minimum wage, whichever is higher) There is a “clear and mutual understanding” between employer and employee You pay the employee at least the fluctuating workweek overtime rate of 0.5 for each overtime hour worked
The fluctuating workweek method is more appropriate in some industries than others, so check with a small business lawyer if you’re unsure.
Fluctuating workweek state law
Some states, such as Alaska, Pennsylvania, and California, restrict or prohibit the use of fluctuating workweek overtime. And, other states, like Connecticut, restrict fluctuating workweeks for commercial employees (e.g., retail).
Not all states explicitly allow or prohibit fluctuating workweeks. Some states that don’t allow this overtime method might not mention or allow it, so be sure to consult with your state.
How does it work with additional pay?
The DOL’s May 20 ruling also states that employers can provide additional pay to employees who use the fluctuating workweek method.
Additional pay includes:
Bonuses Premium payments (e.g., shift differential) Commissions Hazard pay
Include these types of payments in your calculation of the employee’s regular rate (unless the FLSA explicitly excludes them).
Fluctuating workweek overtime calculation
To calculate an employee’s overtime rate, first calculate their hourly rate. You can find an employee’s hourly rate by dividing their weekly salary by the number of hours worked during the week.
Next, multiply the employee’s hourly pay rate by 0.5 for each hour theyContinue reading