THE FLUCTUATING WORKWEEK

Steven Cesare, Ph.D.

A business owner from Virginia contacted me the other day to discuss using the Fluctuating Workweek as a method for saving overtime wages normally paid to non-exempt employees. While technically correct, I informed the owner that the Fluctuating Workweek is not as simple as it sounds and that great legal and procedural care must be taken each payroll period to ensure verifiable legal compliance; failure to do so could result in severe financial penalties.

Realizing that several states (e.g., Alaska, California, Missouri, New Mexico, Pennsylvania, Connecticut, Montana, New Jersey) either prohibit or limit the use of the Fluctuating Workweek method, I assured the owner that the state of Virginia does allow its implementation.

I then proceeded to outline the five conditions necessary for legal implementation of the Fluctuating Workweek:

The hours within the employees must fluctuate from week-to-week, meaning they must work fewer than 40 hours in some weeks; there must be weekly variability, not just seasonal adjustments.
The employee must be paid a fixed salary regardless of the number of hours worked each week.
• Employees who are paid an hourly wage do not qualify.
• With rare exceptions, employees’ pay cannot be docked if they work fewer than 40 hours per week.
The salary must be sufficiently large enough so that the regular rate of pay will never drop below the appropriate, state or federal, minimum wage level.
• Example: Minimum wage of $9.00/hour requires a fixed weekly salary of at least $360.00
In addition to the fixed salary, the employee must be paid overtime premiums for any hours worked over 40 in the workweek; the overtime premium rate is 50% of the regular rate of pay for the workweek.
• Overtime Pay = (Regular Rate of Pay x .5) x Hours Worked in Excess of 40
There must be an understanding between the employer and the employee that the employee will be paid using the fluctuating workweek method.
• The employee does not have to understand how to calculate overtime pay.
• A signed agreement is not necessary.

Beyond these five fundamental conditions, I also informed the owner that the Fluctuating Workweek is incompatible with non-discretionary bonuses (i.e., performance-based bonuses for job quality scores, customer retention, production efficiency).

This is the basic formula:

Weekly Salary + ((½(Weekly Salary/Total Hours Worked)) * Overtime Hours)

Here are some examples I shared with the business owner: