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What is the “Fluctuating Workweek” Method of Calculating Overtime?

FLSA: Fixed Salary Fluctuating Hours

The Fair Labor Standards Act (FLSA) is a federal law that establishes minimum wage, overtime pay, and other employment standards affecting both the private and public sectors of employment. There are two (2) types of employees: exempt and non-exempt. Generally, covered non-exempt employees are entitled to overtime pay for all hours worked over forty (40) per workweek, at a rate not less than one and one-half times the regular rate of pay, while exempt employees are not entitled to overtime. Salaried employees are often considered exempt, but there are times when salaried employees may be entitled to overtime compensation. One example is when employees are paid a fixed salary for fluctuating hours. Their overtime compensation is calculated at a different rate using the “fluctuating workweek” method, rather than the traditional method under the FLSA. 

The FLSA permits employers to pay its employees a fixed salary for fluctuating hours in a workweek if four (4) conditions are met: (1) the employee’s hours of work vary from week to week; (2) the employee receives a fixed salary that does not fluctuate with the number of hours worked each week, besides overtime; (3) the fixed salary must be sufficient to provide compensation that is equal to, or greater than, the minimum wage rate for every hour worked during a workweek; and (4) the employer and employee must share a “clear mutual understanding” that the employer will pay that fixed salary no matter the amount of hours worked in a week. 

What is the Fluctuating Workweek Method for Overtime Compensation?

Under the fluctuating workweek method, employees are compensated a fixed salary (“straight time regular rate”) regardless of how many hours they actually work, knowing that some weeks will have more hours, and some will have less. These employees are still entitled to overtime compensation for hours worked in excess of forty (40) but at a rate equal to one-half their “regular rate.” The tricky part is determining an employee’s “regular rate” in order to calculate overtime. 

Since the fixed salary is intended to compensate the employee at a set rate no matter the hours worked in a workweek, the regular rate of pay will vary week to week depending on the number of hours actually worked that week. Under the FLSA, the employee’s regular rate is calculated by dividing the number of hours actually worked in a workweek into the fixed salary for that time. Accordingly, overtime hours are then compensated at one-half the established rate for that period, in addition to the fixed salary, which covers the straight time regular rate under the salary agreement.

 Fluctuating Workweek Method: An Illustration. 

For example, take an employee that earns a salary of $600 a week, regardless of the hours actually worked in a workweek. Let’s say this employee works 40 hours the first week, 37.5 hours the second week, 50 hours the third week, and 48 hours the fourth week. In calculating the employee’s regular rate, you would divide the hours worked for that week into the $600 salary. In the situation listed above, the employee’s regular rate would be $15.00 for the first week, $16.00 for the second week, $12.00 for the third week, and $12.50 for the second week. Since the employee has already received straight-time compensation for all of the hours actually worked, the employee is only entitled to one-half the regular rate for that week in which the employee worked overtime. In this illustration above, the employee would only be entitled to compensation for the third and fourth weeks. For the third week, the employee would be entitled to 10 hours at $6.00 an hour as overtime compensation. While for the fourth week, the employee would be entitled to 8 hours at $6.25 an hour as overtime compensation. 

Fluctuating Workweek Method: Final Thoughts. 

While this method of overtime payment may be helpful for employers, they must still ensure they are compensating their employees with a salary sufficient to assure that no workweek will be worked in which the employee's calculated “regular rate” sets them below the federal minimum wage. Typically, this method of payment is used for employees who do not customarily work a regular schedule of hours and the fixed salaries are usually in amounts agreed on by the parties as adequate straight-time compensation for long workweeks as well as short ones, taking a comprehensive approach to compensation.

If you feel your rights under the FLSA have been violated, or if you have any other questions regarding your employment rights, please contact the experienced Birmingham employment law attorneys at Wrady Michel & King. You can contact us either online or by calling us at (205) 3199724. We are here to serve you!