DOL Final Rule Fluctuating Workweek Method of Overtime

At a Glance

• The Department of Labor final rule on “Fluctuating Workweek Method of Computing Overtime” clarifies that payments made in addition to the fixed salary are compatible with the use of the fluctuating workweek method of compensation, and that such payments must be included in the calculation of the regular rate as appropriate under the FLSA.
• The name of the rule has also been changed from “Fixed salary for fluctuating hours” to “Fluctuating Workweek Method of Computing Overtime.”
• The changes are effective August 7, 2020
• The final rule may be found here.

Introduction

The U.S. Department of Labor (DOL), has issued a final rule that revises the regulation for computing overtime compensation for salaried, non-exempt employees who have varying hours each workweek (i.e., a fluctuating workweek) under the Fair Labor Standards Act (FLSA).

The final rule clarifies that bonuses, premium payments, commissions and hazard pay in addition to fixed salaries are compatible with the fluctuating workweek method of compensation, and that employers must include supplemental payments when calculating the regular rate of pay under the FLSA. 

The final rule also changes the name from “Fixed salary for fluctuating hours” to “Fluctuating Workweek Method of Computing Overtime.”

The final rule is effective August 7, 2020.

Employee Eligibility

The rule applies to non-exempt employees who work fluctuating hours from week to week and receive an agreed upon fixed salary as straight time compensation for whatever hours the employee works in a workweek, whether few or many.  The regulation does not require that an employee's hours must sometimes fluctuate below forty hours per week, so long as the employee's hours worked do vary.

The salary must be sufficient to provide compensation to the employee at a rate not less than the applicable minimum wage rate for every hour worked in the workweeks in which the number of hours worked by the employee is the greatest. In any given workweek where the employee's fixed salary does not at least meet the applicable minimum wage, the employer must make an additional payment to bring the employee up to the applicable minimum wage.

Calculating Regular Rate and Overtime

The regular rate is calculated by dividing the number of hours worked in the workweek, by the salary. Additional bonuses or premium payments must be included in the calculation of the regular rate unless they may be excluded under FLSA sections 7(e)(1)-(8).

The overtime pay requirement is satisfied if in addition to the salary amount, the employee is compensated for at least one and a half times the employee’s regular rate for any overtime hours. The rate must be determined separately for each week based on the number of hours actually worked each week.

Examples provided in the Final Rule

The final rule also adds examples to 29 CFR 778.114(b) to illustrate the fluctuating workweek method of calculating overtime where an employee is paid (1) a nightshift differential, (2) a productivity bonus in addition to a fixed salary, and (3) premium pay for weekend work. 

Next Steps

Employers should review their current compensation practices and scheduling practices to comply with the final rule. The fluctuating workweek method of overtime may affect overtime compensation and legal liability for employers.

An overview of the Joint Employer changes can be found on the DOL website and the full regulations can be found on the Federal Register website.

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This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.