Back-To-Basics: Applying Half-Time Overtime / The Fluctuating Work Week

“The more that you read, the more things you will know. The more that you learn, the more places you'll go.” 

― Dr. Seuss, I Can Read With My Eyes Shut!

Under the Fair Labor Standards Act (“FLSA”), employers are able to pay their employees using a fluctuating work week (“FWW”) method. Overnight Motor Transportation Co. v. Missel, 316 U.S. 572 (1942). This is available for exempt employees who work a different number of hours every week and have agreed or understand that their salary is meant to compensate them for all hours worked. Of course, it isn’t required that the employer explain the half-time calculation or the employees understand the methodology. It is enough if they understand they are paid on a salary basis and get the fixed salary for all the hours they work without impermissible deductions. However, employers need to make sure that their salary does not fall below the minimum hourly wage, their average hourly wage will decrease as their work hours increase during a work period. In failed exemption cases, where an employee was presumed exempt but has become non-exempt or was never exempt under the FLSA, the FWW method can be used to calculate the overtime due to the non-exempt employee.

The “Regular Rate”

The “regular rate” is the base, hourly rate of pay that the employee is designated. Overtime is generally one and one-half times the regular rate for all hours over the statutory maximum (generally forty hours in a week). 29 C.F.R. §778.415. In failed exemption cases where the employer was using the FWW method, the employer and employee can calculate the regular rate by dividing the salary or fixed rate that the employee was receiving, by the number of hours that the employee actually worked in that week. 29 C.F.R. §778.109. The regular rate can then be used to calculate the overtime liability.

Half-Time

As stated before, employers must compensate overtime hours by a multiplier of one- and one-half times the regular rate. When an employee is compensated using a fluctuating work week, the salary is intended to compensate for all hours worked. This results in each hour worked over the statutory maximum being compensated by the weekly salary. The straight-time overtime portion is encompassed by the salary. Therefore, the employer only needs to compensate the employee for the remaining one-half of those hours (hence the phrase “half-time). This method of calculation can be traced to the 1942 Supreme Court decision Overnight Motor Transportation Co. v. Missel, 316 U.S. 572 (1942), which allowed the regular rate of pay to be divided by all hours worked in the week where the work week constantly fluctuated.

The best way for employers to protect their interests and maintain transparency with their employees is by providing a consent form or by keeping written acknowledgement that the employee understands that their salary is compensation for all hours worked, and that overtime will be calculated using the half time method. This is not a necessary component and, in cases where the employee was not aware of the method of overtime calculation, the courts have repeatedly ruled that an understanding that the employee’s salary was compensation for all hours worked was enough to use the half-time method. See Martin v. Tango’s Restaurant, Inc., 969 F.2d 1319, 1324 (1st Cir. 1992); Bailey v. County of Georgetown, 94 F.3d 152 (4th Cir. 1996); Singer v. City of Waco, 324 F.3d 813 (5th Cir. 2003). Plaintiffs in overtime back-wage lawsuits have argued that there is no clear mutual understanding of how they are compensated if there was no understanding of how overtime was compensated, however courts reject this theory because the clear mutual understanding does not need to be how overtime is to be paid, but whether the employee is paid on a fixed weekly rate regardless of hours worked, because the clear mutual understanding applies to determining the employee’s “regular rate of pay”. In addition to the case law supporting this method, current DOL regulations have endorsed the half-time overtime in these situations. 29 C.F.R. §778.114(a).  

The half-time overtime calculation method is a useful tool because it allows the employer to compensate their employees using a fixed rate and still get credit for the amount already paid to the employee. However, it is important for employers to follow case law and administrative guidance in structuring the fluctuating work week so that they are correctly compensating their employees. There are four major compliance aspects that are necessary for calculating overtime using the half-time method: 

1.     The employee’s hours fluctuate week to week;

2.     The employee receives a fixed salary regardless of the hours worked in the week;

3.     The employer and employee understand that the salary is meant to cover all time worked; and

4.     The salary does not fall below the FLSA minimum wage. 

An employer can meet these requirements and then calculate the overtime owed to their employees by multiplying the regular rate by one-half for all hours worked above the statutory maximum.

The FWW method may also be useful in failed exemption cases when the otherwise salaried exempt employee turns out to fail the duties test for one reason or another. the remedy for back wages hen, under the majority view is half-time overtime, and not time and one-half damages.

Finally, check to see if the FWW method is permitted under state wage laws. California and Alaska have special overtime requirements which purport to negate half-time.