My colleague, Mick Lavelle, has this post on a topic that few know about and even fewer understand: The Fluctuating Work Week. For more background on the subject, I’ve talked about it in earlier posts here and here.
Interpretation of the federal Fair Labor Standards Act is aided by hundreds of pages of regulations and U.S. Department of Labor advisory opinions. Connecticut’s wage-hour statutes, which cover the same ground, have far fewer interpretive aids.
But since states can regulate payment of wages, work hours and overtime practices more strictly than the federal law (which is why many states, including Connecticut, have a higher minimum wage), it is often a question as to whether Connecticut allows a wage payment practice that is clearly acceptable under the FLSA.
One such practice is the payment of overtime calculated on a “fluctuating work week”.
The fluctuating work week method has been allowed under federal law since the 1940’s. A recent and well-reasoned Connecticut Superior Court decision, Roach v. Moran Foods, issued on March 16, 2012, now seems to establish that Connecticut employees can use the fluctuating work week and be in compliance with Connecticut law. (You can view the complaint in the case here.)
The most important element in the fluctuating work week method is that an employee’s work hours genuinely fluctuate from week to week. The employee can be paid an equal amount each week (much like a salary), and his hourly rate is determined by dividing the pay amount by the number of hours actually worked in any week. The employee is paid overtime (that is, the extra half-time) for all hours in excess of 40.
Let’s say an employee is paid $800 per week. Under the usual method, this would be $20 an hour for a 40-hour week. It’s a good deal for the employee in weeks in which fewer than 40 hours are worked; in a 20-hour week, he gets the equivalent of $40 per hour. But in a 50-hour week, the regular rate is only $16 per hour. Since the $800 covers all hours at the regular rate, the employee is owed half-time, $8 per hour, for the extra 10 hours over 40, or $80. Without the fluctuating work week method, his overtime would be $300.
There is an important caveat – the regular rate under the fluctuating work week can’t be below the minimum wage. When I started drafting this post, I chose $400 as the weekly pay, but my 50-hour example resulted in a regular rate of $8, and the minimum wage is $8.25. So I inflated my example to $800 per week.
One other important caveat is that the fluctuating work week method must be established in a clear agreement between the employer and the employee. This should be in writing and signed by the employee.
The fluctuating work week may not be for every employers, but in the right situation, it can be a very useful way of paying employees while controlling costs.