Under the FLSA, a non-exempt employee generally is entitled to payment of overtime wages equal to one and one-half times his regular (hourly) rate of pay. However, under limited circumstances, the fluctuating workweek (“FWW”) method of calculation allows an employer to pay an employee overtime at a rate of only one-half of his regular (hourly) rate. The application of the FWW arises where non-exempt employees who are entitled to overtime are salaried.
The FWW method of calculating overtime is the exception. In order to use the FWW method, employer must satisfy all of the following requirements: (1) a clear mutual understanding between the parties; (2) varying hours worked from week to week; (3) payment of a fixed salary, regardless of the number of hours worked during a particular week; (4) payment of a salary equal to or greater than minimum wage; and (5) payment of compensation in addition to the salary for all overtime hours worked. If the employer of a non-exempt salaried employee who is exempt cannot satisfy all five of these requirements, then the FWW exception does not apply and the employer must pay overtime at the greater rate of time and a half, not half-time.
The difference between the methods of calculating overtime wages is significant and cannot be understated. In fact, under certain circumstances the FWW method can result in overtime compensation that is over 100% lower than the overtime wages due under the time-and-a-half method. The Department of Labor recognizes this disparity and therefore does not believe that it is appropriate to expand the use of the FWW method of computing overtime pay. Dep’t of Labor Rules & Regulations, 76 F.R. 18832-01, (April 5, 2011)). Therefore, application of the FWW method will be narrowly construed.
Where salaried employees assert that they were misclassified as exempt, application of the FWW is even more tenuous. Courts holding that the FWW does not apply in such cases have noted that there cannot be a “clear mutual understanding” regarding the hours the salary was intended to cover when the employer never contemplated overtime pay when it classified the employees are exempt. These courts have noted that there is nothing in the history or the language of the FWW regulation indicate that the calculation method should be used as a fallback whenever employers mistakenly classify employees as FLSA-exempt. In addition, because exemption cases do not involve the “contemporaneous payment of overtime,” these courts also have held that this requirement is not satisfied in such cases. In addition, if any employer pays bonuses or commission in addition to the salary, this may violate the “fixed salary” requirement to the exception to the FWW.
Therefore, any non-exempt salaried employee who is not receiving time-a-half for overtime hours worked, should consider whether the employer has satisfied all of the requirements for the FWW method. If such a non-exempt salaried employee has any question regarding whether the FWW properly is being used to calculate overtime, that employee should contact Shavitz Law Group. In addition, any salaried employees who believe they have been misclassified as exempt also may be entitled to overtime wages at the rate of time-and-a-half.