The Fair Labor Standards Act defines a normal workweek for payroll purposes as 40 hours in a seven-day span. Yet the law also accounts for what is known as a ‘fluctuating workweek’. This accommodation is very helpful to employers whose workers do not always follow a fixed schedule. Continue reading to learn more about what a fluctuating workweek is and how it affects payroll.
In a release published by the Wage and Hour Division of the Department of Labor, the government stated the following in regard to compensating employees based on a fluctuating workweek:
“According to 29 C.F.R. § 778.114(a), a salary paid based on the fluctuating workweek method is intended to compensate an employee “for whatever hours he is called upon to work in a workweek, whether few or many.” In addition, subsection (c) requires that “the employer pays the salary even though the workweek is one in which a full schedule of hours is not worked.”
The text makes it clear that the rules of a fluctuating workweek only apply to salaried, non-exempt workers. They do not apply to hourly workers because said workers have a consistent pay rate regardless of the number of hours worked.
The Fluctuating Workweek Defined
Payroll provider BenefitMall explains that a fluctuating workweek scenario exists when an employee does not consistently put in a straight 40 hours per week. One week a worker may put in 35 hours while the next week it is 42 hours. The following week could be 47 hours. This is fairly common among salaried employees. If a salaried employee is classified as non-exempt, he or she would have to be paid overtime for those weeks when more than 40 hours was worked.
The question then becomes one of how much extra pay the employee receives. Because he or she is salaried, there is no standard hourly rate to rely on. This is where the rules of fluctuating workweeks come into play.
Calculating Overtime Pay
Federal law mandates that non-exempt employees receive 1.5 times their normal hourly rate to compensate for overtime. If you have an hourly worker making $10 per hour, calculating overtime is fairly simple. For every hour worked in excess of 40 in a given work week, that employee earns $15. It is not so easy when you’re talking salaried workers.
Fluctuating workweek rules require a separate calculation for every week in which overtime was worked. Let’s say you have a salaried worker who earns $1,000 per week. During a typical 40-hour week, that worker’s average hourly rate is $25 per hour, derived by dividing 1,000 by 40.
During the week that worker puts in 45 hours, his or her hourly rate drops to $22.22. Overtime pay for that week would be derived by multiplying the hourly rate by 1.5 to arrive at an overtime rate of $33.33. That is the rate the employer would pay for the five hours of overtime.
Certain Conditions Apply
Note than an employer cannot automatically utilize the fluctuating workweek rules when paying overtime to salaried, non-exempt employees. In other words, certain conditions apply. For example, the affected employee’s average wage must normally be above minimum wage.
There are more than half-a-dozen other criteria that have to be met in order for an employer to utilize fluctuating workweek rules. They can all be found on the Department of Labor website. The lesson to be learned here is that fluctuating workweeks can make it a bit more challenging to calculate overtime pay. It is yet another reason to outsource payroll to a third-party provider like BenefitMall.