© 2024 Seyfarth Shaw LLP | www.seyfarth.com Classification Guidebook | 13 If the employee’s salary is $40,000 (i.e., $769.23/week) and she works 35 hours in the first week, 45 hours in the second week, and 50 hours in the third week, then her total compensation in each of these three weeks would be as follows: Week 1 (35 work hours): $769.23, because the salary is guaranteed and cannot be reduced in weeks that the employee works fewer than 40 hours. Week 2 (45 hours): $811.97, which is the weekly salary (i.e., $769.23), plus halftime for the 5 overtime hours (i.e., $769.23 45 hours = $17.094 regular rate x 0.5 = $8.547 overtime rate x 5 overtime hours = $42.74). Week 3 (50 hours): $846.15, which is the weekly salary (i.e., $769.23), plus halftime for the 10 overtime hours (i.e., $769.23 50 hours = $15.384 regular rate x 0.5 = $7.692 overtime rate x 10 overtime hours = $76.92). Compared to the other methods of pay, the fluctuating workweek method has both more benefits and risks: The benefit to the employee is that, despite a variable work schedule, she receives a predictable salary even in weeks where she works less than 40 hours. The benefit to the employer is that it only owes the employee the additional half-time premium for any hours worked in excess of 40 per week. Also, because the overtime rate of pay decreases as hours worked increases, this method disincentivizes employees from creating work solely to increase overtime pay. The risks are that the employee may feel: (i) punished for working more hours to complete work; and (ii) incentivized to cut corners to finish work in fewer hours. CAUTION: There are a few hurdles to using a fluctuating workweek plan under the FLSA, including: (i) the employee’s hours must fluctuate week to week, which some courts interpret to mean above and below 40; (ii) the employer and employee must have a “clear mutual understanding” that the salary is fixed pay for all hours worked each week, which makes it a best practice to explain the pay method in writing; and (iii) the types of additional compensation that the employee may receive on top of the salary and any overtime pay are more limited than for employees paid by other methods. Also, as noted above, the fluctuating workweek method is not permissible in some states. 3. Could a day rate or a piece rate method be used to pay the reclassified employee? A day rate provides a flat rate of pay for each day the employee works (regardless of the number of hours worked in the day), while a piece rate is based on the number of pieces or units completed. At a high level, under either method, overtime hours may be paid at a half-time rate, as the day- or piece-rate wages are deemed to provide straight-time pay for all hours worked. But the calculation can be trickier where additional types of compensation are paid to the employee, as well as depending on state law nuances. In assessing these methods under the federal law, it is important to remember that neither undoes the need to track actual hours worked and ensure that the employee’s
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