There are two ways an FLSA covered employer may pay a nonexempt employee a fixed salary: the employer may pay a salary for a specific number of hours each week or the employer may pay a salary for whatever number of hours are worked in the week.  Payment of a fixed salary for fluctuating hours of work – referred to as a Fluctuating Workweek – is permitted by existing Department of Labor (DOL) guidelines at 29 CFR section 778.114, subject to certain conditions, including a mutual understanding of the parties regarding the compensation arrangement.

Importantly, under a valid Fluctuating Workweek, the employer need only pay one half (0.5) the regular rate for each hour worked in excess of forty per week, instead of time and one half (1.5) the regular rate.  (For more on the regular rate, click here.)   The halftime premium for overtime hours would be paid in addition to the fixed salary.  Referred to as the Fluctuating Workweek Method of Calculating Overtime, this arrangement benefits employees by providing them with a fixed salary despite fluctuating hours of work and benefits employers by reducing overtime costs.

Despite its benefits, the Fluctuating Workweek Method has been challenged in courts and its application is unclear.  For this reason, on November 4, 2019, the DOL proposed new guidelines on the requirements of the Fluctuating Workweek Method of Calculating Overtime.  The new guidelines are expressly intended to make it easier for employers to apply this method in the modern workplace.  To read the proposed rulemaking, click here.

The main thrust of the DOL’s proposed rule is that additional pay of any kind on top of the fixed salary is compatible with the Fluctuating Workweek Method.  Presently, courts have issued conflicting decisions on whether add-on pay disqualifies employees from the Fluctuating Workweek Method.  Under the DOL’s proposed rule, employees would be eligible for the Fluctuating Workweek method regardless of whether they receive bonuses, additional hourly pay, additional lump sum pays, premiums, shift differentials, and/or incentive-related sums.

The DOL’s proposed rule does not, however, clarify exactly what it means for workweek hours to fluctuate sufficiently to qualify for this method of compensation.  But the DOL’s proposed rulemaking document does state that an employee who works a “usual” number of hours may still be paid under the Fluctuating Workweek Method if there is some weekly variation in the number of hours worked.  In this way, the Fluctuating Workweek Method may be most appropriate for employees who are transitioning from exempt to non-exempt status but wish to retain their fixed salary or salaried status.  Employers considering the Fluctuating Workweek Method of Calculating Overtime should consult with legal counsel prior to making any changes to employee compensation.  Change to represented employee compensation is a mandatory subject of bargaining under California’s Meyers-Milias Brown Act.

The DOL has requested comments on these proposed changes.  Comments are due by December 5, 2019.  Those interested can submit their comments online.

LCW will continue to monitor the comment period and will provide further updates as needed.  Please visit our website at www.lcwlegal.com for regular briefings on the FLSA.

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Photo of Lisa S. Charbonneau Lisa S. Charbonneau

Lisa represents and advises Liebert Cassidy Whitmore clients in all matters pertaining to labor and employment law. She represents LCW clients in employment litigation throughout the state and advises clients on issues ranging from state and federal wage and hour law compliance to…

Lisa represents and advises Liebert Cassidy Whitmore clients in all matters pertaining to labor and employment law. She represents LCW clients in employment litigation throughout the state and advises clients on issues ranging from state and federal wage and hour law compliance to the interactive process to the mandates of the Meyers-Milias-Brown Act.

Lisa has appeared in state and federal courts throughout the Bay Area, as well as before the California Labor Commissioner, the Equal Employment Opportunity Commission, and the California Commission on Teacher Credentialing. Prior to joining LCW, Ms. Charbonneau represented private employers and public and private employees in litigation matters ranging from wage and hour class actions to public employee dismissal proceedings to individual discrimination lawsuits.

Lisa received her JD from U.C. Hastings College of the Law in 2006 and was admitted to the California State Bar in December of that year. While at Hastings, Lisa served as an Equal Justice America fellow and received a grant to work on community economic development issues for the City of Detroit. Lisa earned her Bachelor of Arts with Honors in Government from Wesleyan University in Middletown, Connecticut, and soon after that worked at a political magazine, The American Prospect, until she began to pursue her law degree.

Lisa was recognized as a “Rising Star” by Northern California Super Lawyers in 2012, 2013 and 2014, and in 2010 received a Community Partner Award for pro bono work with the Transgender Law Center in San Francisco, California. She is a member of the California State Bar’s Litigation Section and Women Lawyers of Alameda County.