On May 20, 2020, the U.S. Department of Labor (“DOL”) announced its final rule on fluctuating workweek pay, which revises the DOL’s proposed regulation on the method of pay to employees working fluctuating hours week by week. The DOL’s final rule states that if employers choose to pay additional compensation to salaried nonexempt workers—such as bonuses, premium payments, commissions, and hazard pay—employers must include those incentive payments in their calculations of such employees’ regular and overtime pay rates. Certain types of payments are excluded from the regular rate, as listed in Section 7(e) of the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 207(e).
The requirements of the fluctuating workweek pay rule, 29 CFR § 778.114, are that (1) work hours must fluctuate from week to week; (2) employees with fluctuating workweeks must be paid a fixed salary as straight time pay regardless of the hours worked in a week (but less than 40 hours); (3) the employee and employer must have a clear mutual understanding, preferably express and written, that the employer will pay the employee on a fixed salary, except for any overtime premiums (half of the regular rate of pay) whenever the employee works over 40 hours in any given workweek; and (4) the employee’s fixed salary must at least cover minimum wage.
This final rule helps to clarify the way regular rates are calculated for employees working on a fluctuating workweek arrangement, which would ultimately help determine the half-time rate for hours those employees work over forty (40) in any given workweek. The regular rate of pay is calculated by dividing the employee’s fixed weekly salary plus any incentive payments (numerator) by the total number of hours the employee worked that week (denominator). From there, the overtime premium is calculated by dividing the regular rate by one-half. Note that this overtime pay calculation is specific to cases of fluctuating workweek pay and employers must otherwise pay their employees one and one-half times their regular rate of pay in accordance with the FLSA.
Through this final rule, the DOL also added examples to 29 CFR § 778.114(b) to help employers and employees visualize how the fluctuating workweek method works and changed the language of 29 CFR § 778.114 to make it less difficult to read and understand.
As employers start to reopen their offices or rehire employees while complying with guidance on social distancing, employers should consider planning and creating flexible work schedules for their employees. Such work arrangements may lead to more fluctuating and varying work schedules, thereby making this final DOL rule especially helpful for determining proper compensation methods. However, employers should consult with experienced counsel on this method of work schedule and pay so as to not violate any overtime pay regulations.
This DOL rule on fluctuating workweek pay will be effective 60 days after it is published in the Federal Register. As of today’s date, the rule has not yet been published in the Federal Register.