DOL Opines That Weekly Hours Do Not Have to Fluctuate Above and Below 40 Hours to Qualify for the Fluctuating Workweek Overtime Method

The FLSA requires employers to pay their nonexempt employees at least “one and one-half times the regular rate at which [the employee] is employed” for all hours actually worked in excess of 40 in a workweek. 29 U.S.C. § 207(a).

The Administrator observed that an employer may use the fluctuating workweek method to compute the amount of overtime pay owed to a nonexempt employee under the FLSA if five criteria are met:

1. The employee’s hours of work fluctuate from week to week;
2. The employee receives a fixed salary that does not vary with the number of hours worked;
3. The amount of the fixed salary is sufficient to satisfy the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours the employee works is greatest;
4. The employee and the employer have a clear and mutual understanding that the fixed salary is compensation (apart from overtime premiums and any bonuses, premium payments, commissions, or other additional pay that may not be excluded from the regular rate) for the total hours worked each workweek regardless of the number of hours; and
5. The employee receives, in addition to the fixed salary and any bonuses, premium payments, commissions, and additional pay of any kind, compensation for all overtime hours worked at a rate of not less than one-half the employee’s regular rate of pay for that workweek.
   29 C.F.R. § 778.114(a)(1)-(5).

Using this approach to calculate overtime can be advantageous to employers. With straight time already compensated in the employee’s salary, the employer need only pay the employee one-half the basic rate for hours worked beyond 40 in a workweek. And the amount of half-time payment will vary depending upon the number of hours worked beyond 40 during the workweek.

On whether an employee’s work hours must fluctuate above and below 40 per workweek for this approach to calculating overtime to apply, the Administrator observed that the “WHD construes its regulations using traditional tools of statutory interpretation and applies the plain meaning that those tools uncover.” Using that method, it found the issue presented could be answered, “in a straightforward and unambiguous manner.”

According to the Administrator, “[t]he plain language of the regulation makes clear that there is no requirement that an employee’s hours vary both above and below 40 per week to come within the rule; it requires only that the employee’s hours fluctuate from week to week. See 29 C.F.R. § 778.114(a)(1) (requiring that “[t]he employee works hours that fluctuate from week to week”). This conclusion is reinforced by Section 778.114(d), which discusses a fixed salary that “does not vary with the number of hours worked in the workweek, whether few or many.” Hours that are “few or many” include an employee’s work hours that could be more than or less than the 40-hour workweek—or both. See Ramos v. Telgian Corp., 176 F. Supp. 3d 181, 195 (E.D.N.Y. 2016).

The Administrator pointed out that the “WHD has long held that the fluctuating workweek method does not require that an employee’s hours of work fluctuate below 40 hours per week.” The WHD reaffirmed this interpretation in the preamble to the fluctuating workweek final rule, published on June 8, 2020, and which became effective on August 7, 2020.

Moreover, the WHD has consistently stated that the method is appropriate even when the employee always works more than 40 hours per week. See WHD Opinion Letter FLSA (Oct. 27, 1967) (“There is no requirement that the hours of work of an employee compensated on a fluctuating workweek basis fluctuate above and below 40 hours in a workweek….”); WHD Opinion Letter FLSA2009-3, 2009 WL 648995 (Jan. 14, 2009) (fluctuating workweek method can be used to compute back wages for workers whose hours fluctuated but who were generally expected to work at least 50 hours per week).

Although not directly related to the opinion letter request, the Administrator also noted that the WHD has long held that an employer using the fluctuating workweek method may not deduct from an employee’s salary for absences occasioned by the employee. For instance, an employer using the fluctuating workweek method may not deduct from an employee’s salary when the employee has exhausted a sick leave bank or not yet earned sufficient sick leave to cover an absence due to illness. However, there is an exception to this general prohibition: An employer using the fluctuating workweek method “may take occasional disciplinary deductions from [an] employee’s salary for willful absences or tardiness or for infractions of major work rules, provided that the deductions do not cut into the [required] minimum wage or overtime pay….” 29 C.F.R. § 778.114(d) (emphasis added). The WHD has long interpreted the “fixed salary” requirement to permit these occasional deductions. The Administrator confirmed that “[t]his interpretation is now explicitly incorporated into the fluctuating workweek rule, which became effective on August 7, 2020.

The WHD concluded that “the fluctuating workweek method of calculating overtime pay requires only that an employee’s hours worked fluctuate from week to week, not that they fluctuate above and below 40 hours worked per week.” Therefore, “assuming all of the other conditions for using the fluctuating workweek method are satisfied, an employee may qualify for the fluctuating workweek method if their hours fluctuate only above 40 hours per week.”

Employers may rely on this interpretation under the FLSA, but should check applicable state laws to determine if they accept the fluctuating workweek method.