Tuesday, November 1, 2016

Don’t forget the fluctuating workweek for your salaried nonexempt employees

Are you still struggling with how to handle your currently exempt employees who, one month from today, will earn less than $913 per week? If you have a salaried employee, no matter what they do on a day-to-day basis, if he or she earn less than $913 per week, beginning December 1 that employee will be non-exempt no matter what.

Let me offer a suggestion you may not yet have considered—the fluctuating workweek.

As an employer, you have two options to pay these salaried, non-exempt employees:
  1. Under the standard method, you calculate the employee‘s weekly rate based on the salary divided by the number of hours worked that week, and then pay the employee 1.5 times that rate for all overtime hours. Thus, if a non-exempt employee earns a salary of $1,000 a week, and works 50 hours in a week, the employee would earn an additional $30 per hours worked over 40 ($1000 / 50 = $20 per hour base weekly rate x 1.5 = overtime premium of $30). Thus, in this week, the employee would earn an additional $300 for the 10 hours of overtime, rendering his total pay for that week $1,300, not the customary $1,000 salary.

  2. Under the fluctuating workweek method, you include the base-rate part of the overtime premium in the employee’s weekly salary, and only pay the 0.5 premium kicker as overtime. Using the same example as in number 1 above, the employee would still have an hourly rate of $30, but would only earn an additional $100 for the week, as under this method, $20 of the $30 overtime rate has already been paid as part of the base salary.
As you can see, there is a clear economic advantage to employers using the fluctuating workweek calculation to pay overtime to salaried non-exempt employees. You’ll realize a 66 percent savings on your overtime pay.

Under the FLSA, however, an employer cannot unilaterally implement the fluctuating workweek calculation. Instead, to pay salaried, non-exempt employees via this advantageous method, you must meet these four elements:
  1. the employee clearly understands that the straight-salary covers whatever hours he or she is required to work;
  2. the straight-salary is paid irrespective of whether the workweek is one in which a full schedule of hours are worked;
  3. the straight-salary is sufficient to provide a pay-rate not less than the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours worked is greatest; and
  4. in addition to straight-salary, the employee is paid for all hours in excess of the statutory maximum at a rate not less than one-half the regular rate of pay.
Recently, the 11th Circuit court of appeals, in Garcia v. Yachting Promotions, Inc., examined whether an employer, sued for unpaid overtime, properly applied the fluctuating workweek to its calculation of overtime for the plaintiff. The court said because the parties had reached, via a signed memorandum, “a clear understanding that his base salary remained the same regardless of how many hours he worked, be it over or under 40 hours a week,” the employer had properly paid overtime to the plaintiff.

What are the takeaways?
  1. If you haven’t yet determined how you will handle your currently exempt employees earning less than $913 per week, time is running out. You have 30 days from today to figure out and implement your strategy. 
  2. If you have non-exempt salaried employees who work hours fluctuate from week-to-week, give strong consideration to implementing a fluctuating work week, via a written agreement that explains, in plain English the arrangement.