Installment: Fluctuating Workweek Method of Overtime Calculation Date: May 5, 2014 Length: 05:15 Coffee With Kenny Kenny Colbert, President Hi I’m Kenny Colbert. Thanks for joining me for coffee today. Do you know that the federal law allows you to pay non‐exempt employees on a half‐time basis rather than a time‐and‐a‐half basis for overtime? This is spelled out in Section 778.114 of the Fair Labor Standards Act, Fixed Salary for Fluctuating Hours. Here’s how it works. You have to pay the non‐exempt employee a weekly salary. For our purposes, we’re going to say $600 per week. The law says that this $600 that you quoted the employee must be paid every week, regardless of the hours that they worked. So if the employee works less than 40 hours, you have to pay them that $600 guaranteed salary. Now I know in many cases you allow your employees to use sick days or vacation days if they work less than a full week, and that is quite OK to do under the fluctuating workweek method. However, if your employee exhausts all of his paid time off, you cannot dock his pay if he works less than a 40 hour workweek. Conversely, if the employee does no work in a workweek, you are not required to pay any wages at all. And remember, a workweek for purposes of the Fair Labor Standards Act is a 7 day, 168 hour week. But the law says, if you don’t dock the person’s pay, then you’ll be given a break and you only have to pay half‐time for overtime. Let me give you an example of how that works. Let’s say you have an employee who works 44 hours per week, and again, they make $600 for the week. So you’d take $600, divide it by 44 hours, and that comes out to be $13.63 per hour. That’s their hourly rate of pay for that week. Now we’re going to pay half‐time, so you would divide that number by 2, and that comes out to $6.81 per hour. The person worked 4 hours of overtime, so you take the $6.81 times 4 hours of overtime and that turns out to be $27.24. Add that back to the $600, so they make $627.24 for the week. Now, let’s say in the next week the employee only works 18 hours. You’re required to pay them that $600 guaranteed salary. Now, in the third week, the person works 48 hours. So you would take $600, divide it by 48 hours, and that comes out to be $12.50 per hour. $12.50 is the “regular rate” of pay. You divide that by 2 to get the half‐time rate, which is $6.25 per hour. Take $6.25 times 8 hours, and that turns out to be $50. Add that back to the $600 and the person makes $650 per week. Let me give you a couple of examples of when you’d want to use the fluctuating workweek method. If you have employees who work a lot of overtime, this can help you control your overtime costs because you’re paying half‐time rather than time‐and‐a‐half. Likewise, it benefits the employee because his pay can never be reduced if he works less than a 40 hour workweek. The Employers Association 3020 West Arrowood Road Charlotte, North Carolina 28273 (704) 522‐8011 www.employersassoc.com Installment: Fluctuating Workweek Method of Overtime Calculation Date: May 5, 2014 Length: 05:15 Coffee With Kenny Here’s another time that you may want to use this method. You probably have a lot of employees who work for you who just want to be paid on a salary basis, they like the prestige of being on salary. This gives them the prestige of being on salary and likewise, you can never dock their pay. If you do an audit of your employees, you may find some people who you currently have classified as exempt employees who really should be non‐exempt employees. Something to do would be change them to non‐exempt, but put them on the fluctuating workweek. They get the advantage of their pay never being reduced, and likewise you meet the intent of the law by paying them half‐time for their overtime. There’s one popular sector that uses the fluctuating workweek method on a regular basis. It’s the NASCAR teams. Many of the NASCAR teams pay their mechanics on the fluctuating workweek basis. These are highly paid employees, and they work a lot of hours. So the employee gets the benefit of never having his pay reduced, and yet the company meets the law by paying the employees half‐time and they save a lot of money that way, as well. Pull up this section (Section 778.114 of the Fair Labor Standards Act, Fixed Salary for Fluctuating Hours) of the Fair Labor Standards Act and read about it. Years ago it used to be called “Chinese Overtime”, because as you can see it’s a little bit confusing to calculate. But thankfully that term, “Chinese Overtime”, has faded away. If you have any questions about the fluctuating workweek method, don’t hesitate to call us here at the Association. Thanks! The Employers Association 3020 West Arrowood Road Charlotte, North Carolina 28273 (704) 522‐8011 www.employersassoc.com