The fluctuating work week is perhaps the least understood subject in wage law under the Fair Labor Standards Act. It is so misunderstood that even federal judges in Texas don’t understand it. The Fifth Circuit rejected the improper application of the fluctuating work week by the Northern District of Texas in Dallas in Black v. SettlePou, P.C..
In Black, the Dallas district judge misapplied the fluctuating work week in an unpaid overtime case. An employee, misclassified by her employer as exempt, was shortchanged on overtime pay. The appellate court instructed the district court to use the regular overtime pay calculation instead. Ok, so what the heck is the fluctuating work week?
The reason why it is misunderstood is it is very different from the typical pay structures under the FLSA. But that isn’t a good reason for the misapplication of the fluctuating work week by either courts or employers. It has been around for over seventy years.
What is the fluctuating work week under the Fair Labor Standards Act
The fluctuating work week is a way of paying hourly employees something like a salary but with overtime pay. It creates an even-ish paycheck each pay period and allows the employer to pay less in overtime pay. The employer benefits with a reduced overtime calculation and a more stable labor cost through the year. The employee, on the other hand, really only benefits from receiving a stable paycheck through the year. It really only makes sense when hours increase during certain times of the year and decrease during others.
Example of the fluctuating work week
A good example is golf course attendants. The course needs more upkeep. There are more players during the spring and summer than there are in the fall and winter. As an employer, you often do not want very high expenses during half of the year if you can make your labor costs more predictable by spreading out the cost of the spring and summer when they are very busy across the cold months when the work is very low.
As an employee, you often benefit from a predictable paycheck each pay period. You normally don’t want small paychecks around the winter when you still have to pay all your bills and probably some extra money for presents, traveling and so on.
Now let’s get into the technical details with how this works. Under a fluctuating work week calculation, the employee receives a guaranteed salary each pay period regardless of hours worked. The employee then also receives half of the regular rate of pay as overtime for each hour worked over forty.
The employee is technically receiving the same 1.5 times regular rate of pay for overtime (the employee is already receiving the “1” in the 1.5 times regular rate of pay overtime calculation in the salary portion and only lacks the “.5” extra overtime pay) but the fluctuating work week employee has a lower regular rate of pay the more hours worked, so overtime is not as financially advantageous to a fluctuating work week employee.
However, the fluctuating work week calculation is more financially advantageous in weeks with fewer hours worked because the employee is receiving the same set salary but working fewer hours to get it. An important caveat is that the employee can never work more hours than would drop the regular rate of pay below minimum wage. We’ll take a look at each of these issues in an example.
Back to the example
Let’s take our golf course attendant as an example. Say the employer offers to pay the employee on a fluctuating work week by paying $400 each week, regardless of how many hours the employee works. In the winter, the employee might only work 30 hours, so that results in wages at $13.33 per hour ($400 divided by 30 hours).
If the employee received a straight hourly rate, she might receive $10 (if we assume the $400 is $10 per hour for 40 hours) and at 30 hours a week receive $300 instead of $400. So the fluctuating work week employee gets a better deal during the slow months.
In the summer, that same employee might work 50 hours. The employee still gets the $400 guaranteed salary but when you look at the hourly rate, that employee is earning $8 per hour ($400 divided by 50). The employee also receives an extra half of the regular rate of pay for each hour over 40, so the employee gets an extra $4 for each hour of overtime ($8 per hour regular rate of pay times 0.5, so the employee is actually getting $12 per hour for overtime, which is 1.5 times the regular rate of $8). So total pay for the week is $440.
The hourly employee receiving $10 gets $400 in non-overtime pay (40 hours time $10) plus overtime of $150 (10 hours of overtime at 1.5 times $10) for a total of $550. Here the hourly employee makes $110 extra but remember in that short week in the winter the fluctuating work week employee made $100 more so the hourly employee is only ahead by $10.
Adding hours over forty
Now let’s say it’s an extremely busy week. Employee works 70 hours. Our fluctuating work week employee is still making the guaranteed $400 salary but now has 30 hours of overtime. That makes the employee’s regular rate of pay just $5.71 per hour ($400 divided by 70).
That’s less than minimum wage so the fluctuating work week agreement would be invalid. The employer cannot require employees to work more than what would result in minimum wage for each hour worked. So the $400 salary could only permit the employee to work up to 55.17 hours ($400 divided by $7.25) and the employee would receive the extra overtime pay on top of that.
The employer must either decide to increase the salary going forward each week to let the employee work 70 hours and make at least minimum wage (70 hours time $7.25 is $507.50) or stop using the fluctuating work week and start paying hourly. Our employee making $10 hourly could work unlimited hours and would receive $850 for the week ($400 for 40 hours at $10 per hour and $450 for 30 hours at $15 per hour).
You can see the total number of hours worked and how much of that time is overtime really affects whether the fluctuating work week is a benefit to the employer or employee. There’s no set rule when it is a good idea but it’s a bad idea if the employee may be required to work enough hours in a week that minimum wage is no longer being paid.
Requirements to pay on a fluctuating work week in Texas
- An employer cannot just decide an employee works on a fluctuating work week calculation. The employee and employer must agree to adopt that calculation, although it does not have to be in writing.
- The employee’s work week must actually fluctuate. Employers may not put all employees on a fluctuating work week to avoid paying overtime on the normal hourly rate.
- The employee must receive a guaranteed salary for each work week that would comply with minimum wage requirements as calculated on a forty hour workweek. The federal regulations require the salary to be large enough that it never results in a regular rate of pay below minimum wage (for example, our 70 hour week employee would violate this regulation).
- The employee must receive 0.5 times regular rate of pay of at least minimum wage for each hour worked in a workweek over 40.
Common ways employers violate the fluctuating work week regulations
1. Employer does not pay the guaranteed salary in weeks where the employee worked less than 40 hours. Employers cannot have it both ways. The employee must be paid the guaranteed salary each week the employee has agreed to be on that calculation.
2. Employee is paid other forms of compensation that disprove a fixed salary is paid. Under the federal regulations, an employee receiving pay under the fluctuating work week calculation cannot receive other forms of compensation as part of the fixed salary or above the fixed salary.
Those additional forms of compensation are evidence that the employee’s pay is not fixed. These include shift pay, incentive bonuses, holiday pay and commissions.
Although the Department of Labor is not opposed to employees receiving more pay the agency generally dislikes the fluctuating work week calculation and uses this regulation to limit employers’ ability to use this calculation. If employers want to incentivize their employees to perform then they must pay on the regularly hourly calculation.
3. No evidence of an agreement to work on the fluctuating work week calculation. The agreement to work under the fluctuating work week does not have to be written; but there must be an agreement. The employer cannot hire the employee on the fluctuating work week without the employee agreeing to that pay structure.
4. The regular rate of pay falls below minimum wage due to the numbers of hours worked and the overtime is not properly calculated. This is probably the most common violation. Employers typically try to set the salary as low as they can. That opens up opportunities where the employee works so many hours of overtime that the salary no longer pays minimum wage. If this happens the employer is subject to claims by the employee for lost wages.
5. The schedule does not fluctuate enough. The federal regulations do not specify how much a schedule must fluctuate; but the courts and the Department of Labor suggest there needs to be fluctuation beyond the norm. An hour or two fluctuation is probably not enough.
What to do if your employer improperly pays on a fluctuating work week
If your employer improperly applies your fluctuating work week agreement or pays on a fluctuating work week when you should receive a normal hourly basis, you may be able to recover lost wages, punitive damages and attorney fees. Speak to a local employment lawyer about your situation. Attorneys who represent clients in unpaid wage claims understand the technical details around the fluctuating work week rules of the Fair Labor Standards Act. Find an attorney in your area.