Fluctuating Work Week: What is it? Can we use it? Will it save me money?
My previous article addressed the topic of the Salaried Nonexempt employee classification, and the bottom line was that the Salaried Nonexempt classification is really not that beneficial to Oregon employers. But what about the Fluctuating Work Week (FWW) method of calculating overtime? Truthfully, it can save employers overtime costs. But don’t be too hasty in implementing this method. Several conditions must be met for it to be legally applied.
Here are the requirements:
- This method of calculating overtime can only be used when the nature of the work prevents the employee from working regular hours. It is not something that employers can establish just because they want to do it that way.
- The law requires that there be a “clear mutual understanding” between the employer and the employee agreeing the fixed salary is intended as straight-time compensation for all hours worked by the employee regardless of the number of hours.
- The employer should have a written consent agreement signed by the employee acknowledging that the employer will be using the “fluctuating workweek” computation for overtime.
- The fixed salary must provide compensation (every week) at not less than the minimum wage.
How does the FWW overtime calculation work?
- The employer establishes a weekly salary that is intended to be the regular base pay for all hours worked.
- The employer determines the employee’s regular base rate by dividing the actual hours worked each week into the set salary.
- The base weekly salary is straight time pay for all hours worked. The employer is only required to pay the additional “half time” premium for all time worked over 40 hours.
Let’s look at an example. Assume that Martha has a “clear mutual understanding” to be paid $800 per week. If one week Martha works 50 hours, Martha’s regular rate of pay is $800/50 = $16.00. Her $800 salary covers all straight time so the overtime due is the additional half time premium for all hours worked over 40 ($16.00 *.5 = $8 * 10hrs = $80).
The next week Martha works 44 hours. During this week Martha’s regular rate is $800/44 = $18.18. Overtime is halftime on all hours over 40 ($18.18 * .5 = $9.09 * 4hrs = $36.36).
During the third week Martha only works 25 hours. How much should she be paid during this week? $800. The mutually agreed upon weekly salary amount. When using the FWW, the salary is intended to cover all hours worked. Since the hours fluctuate and may be unpredictable, it makes it difficult to argue how many hours the salary was intended to cover. Accordingly, under the FWW it covers all hours worked, no matter how few or many. Overtime is still due for all hours over 40 in a workweek.
As you can see from the example there may be some cost savings by using the FWW method. However, use caution before implementing the FWW method as it can be a very risky method of pay. Common mistakes employers make include deductions from salaries for absences like vacation or illness; applying differentials to shift, weekend or holiday work; docking pay for unscheduled absences; and not establishing a “clear mutual understanding”. These errors can result in the employer being required to recalculate and pay back overtime plus additional penalties. If you have more questions about the FWW method of calculating overtime or any other wage and hour questions, please call to speak to one of Cascade’s HR Consultants.
By: Lynn Morris, PHR, HR Consultant