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 saying hours must fluctuate above and below 40 hours per week—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:
- Premium payments (e.g., shift differential)
- 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 they worked over 40 during the workweek.
Lastly, add the employee’s fluctuating workweek overtime to their straight time to get their total weekly earnings.
Example without additional pay
Let’s say your employee works 35 hours one week, 40 hours the next, 37 hours the third week, and 45 hours the following week. You pay them a fixed rate of $800 per week.
If you want to determine the employee’s hourly rate from week to week, divide their weekly salary by hours worked:
- Week 1: $22.86 per hour ($800 / 35)
- Week 2: $20 per hour ($800 / 40)
- Week 3: $21.62 per hour ($800 / 37)
- Week 4: $17.78 per hour ($800 / 45)
You must calculate the employee’s overtime pay for the week they worked 45 hours.
To find the employee’s overtime rate, multiply their week 4 hourly rate of $17.78 by 0.5, or divide by two:
$17.78 X 0.5 = $8.89
Now, multiply the employee’s overtime pay by how much overtime they worked (5 hours):
$8.89 X 5 = $44.45
Finally, add the employee’s overtime pay and their fixed salary to get their total pay for the week:
$800 + $44.45 = $844.45
With overtime, you must pay the employee $844.45 for the week.
Example with additional pay
Let’s say an employee earns a fixed weekly salary of $900. They also receive a shift differential of $5 per hour.
The employee works 45 hours one week. Of the 45 hours, 10 have the shift differential of an additional $5 per hour.
First, multiply the employee’s additional shift differential of $5 per hour by the number of hours subject to this premium pay (10):
$5 X 10 = $50
Now, add the employee’s fixed salary of $900 to the employee’s premium pay to find their straight-time pay:
$900 + $50 = $950
Next, divide the employee’s straight-time pay ($950) by the number of hours worked (45) during the week to find out the employee’s regular hourly rate.
$950 / 45 = $21.11
The employee’s regular rate of pay is $21.11 per hour. Multiply $21.11 by 0.5 to find out what the employee’s overtime rate is:
$21.11 X 0.5 = $10.56
The employee’s overtime rate is $10.56 per hour. Because the employee worked five hours of overtime, you must multiply $10.56 by 5 to get the employee’s total overtime pay. Then, add this amount to the employee’s straight-time pay:
($10.56 X 5) + $950 = $1,002.80
With overtime and the shift differential, you must pay the employee $1,002.80 for the week.
How to implement the fluctuating workweek method
Using the fluctuating workweek method can simplify your payroll. If you want to use this overtime alternative in your small business, be sure to do your due diligence.
First, verify that the employee qualifies for the fluctuating workweek method. You can check with your state and consult with a lawyer to make sure. Then, create a fluctuating workweek agreement and begin tracking overtime hours.
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This article has been updated from its original publication date of January 21, 2019.This is not intended as legal advice; for more information, please click here.