More overtime rule changes proposed!

Posted November 11, 2019

On November 4, 2019, the U.S. Department of Labor (DOL) announced a proposed rule that would revise the regulation for computing overtime compensation for salaried, non-exempt employees who work hours that vary each week (i.e., a fluctuating workweek) under the Fair Labor Standards Act (FLSA). It also clarifies, to employers’ benefit, that bonus and premium payments on top of fixed salaries are compatible with the fluctuating workweek method of compensation, and that supplemental payments must be included when calculating the regular rate of pay as appropriate under the FLSA.

The use of such a method must be pursuant to an understanding with the employer, that the employee is paid a fixed salary as straight time compensation (apart from overtime premiums) for whatever hours the employee is called upon to work in a workweek, whether few or many.

When an employee’s hours of work fluctuate from week to week, the regular rate must be determined separately each week based on the number of hours actually worked each week. The fixed salary must provide pay at a rate not less than the minimum wage rate for every hour worked in those workweeks in which the number of hours the employee works is greatest. Employees must receive overtime compensation, in addition to such fixed salary and any bonuses, premium payments, and additional pay of any kind, for all overtime hours worked at a rate of not less than one-half the employee’s regular rate of pay for that workweek.

In the past, the DOL had the option of adopting a similar rule but did not because it felt the issue was not unduly challenging. Since then, courts have struggled with inconsistencies, particularly a dichotomy between “productivity-based” supplemental payments, such as commissions, and “hours-based” supplemental payments, such as night-shift premiums. Such courts hold that productivity-based supplemental payments are compatible with the fluctuating workweek method, but not hours-based supplemental payments. Some supplemental pay, however, does not fall neatly into either category, such as retention bonuses, safety bonuses, and referral bonuses.

The confusion gave DOL the impetus to take up the need for clarification and revise the rules to allow employers who offer both productivity and hours-based bonuses and premium payments to use the fluctuating workweek method of compensation; such consistent treatment of all bonuses and premium payments that are included in the regular rate should help eliminate confusion for employers.

If, for example, Joe Employee’s workweek does not exceed 50 hours, and his salary of $600 a week is for all hours worked. During the course of four weeks, Joe works 37.5, 44, 50, and 48 hours; the regular rate of pay in each of these weeks is $16, $13.64, $12, and $12.50, respectively. Since Joe has already received straight time compensation for all hours worked, only additional half-time pay is due. For the first week Joe is owed $600 (fixed salary of $600, with no overtime hours); for the second week $627.28 (fixed salary of $600, and 4 hours of overtime pay at half times the regular rate of $13.64 for a total overtime payment of $27.28); for the third week $660 (salary compensation of $600, and 10 hours of overtime pay at half times the regular rate of $12 for a total overtime payment of $60); for the fourth week $650 (fixed salary of $600, and 8 overtime hours at half times the regular rate of $12.50 for a total overtime payment of $50).

The proposed rule is expected to be published in the November 5 Federal Register and is available for public comment for 30 days. If interested, you may submit comments. The DOL estimates that 698,393 workers are paid under the fluctuating workweek method at 35,100 establishments.

Some states do not allow the use of the fluctuating workweek calculation. Industries that might use the method include seasonal ones, paraprofessionals, and even some healthcare positions.

This article was written by Darlene M. Clabault, SHRM-CP, PHR, CLMS, of J. J. Keller & Associates, Inc.