Variable Overtime for Fluctuating Employees

When non-exempt employees are paid a salary for varying hours, their additional overtime pay is computed each week by dividing the salary by the number of hours to obtain the “regular rate.”  Then they are paid one-half the regular rate for the additional overtime hours.  The employees receive only a half-time premium because one times the regular rate is already included in their pay.  This formula was established in an early Supreme Court decision and has come to be known as the FWW method.

The DOL’s longstanding interpretation of the FWW method allows it to be used when employees are paid a “fixed salary” for fluctuating hours.  Some courts have held that additional compensation, such as bonuses or shift differential, means that the salary is not “fixed.”  This, in turn, means that the FWW method cannot be used.  Other courts have concluded that additional hourly compensation, such as shift differential, is incompatible with the FWW method, but that non-hourly compensation, such as sales commissions, is compatible.  This divergence is partially the result of some courts’ general hostility to the FWW method.

The DOL now has proposed a new interpretation that says additional payments of any nature are compatible with the FWW method of computing overtime.  Only the salary portion of the compensation must be “fixed.”  The additional payments would still be included in the regular rate for purposes of computing overtime.  To compute overtime, the salary and additional payments would be combined, and divided by hours worked, to obtain the regular rate.  The overtime premium rate would still be one-half the regular rate.

The DOL does not have statutory authority to issue regulations on the computation of overtime alone.  Courts have the final say on the issue. However, courts normally defer to the DOL’s interpretation if it is well-reasoned.  The DOL’s proposed new interpretation of the FWW method is consistent with the Supreme Court’s prior holdings on the issue and is, in my opinion, legally correct.

The notice period for the proposed new interpretation closed December 5, 2019.  I will watch for a publish update when the new interpretation is issued in final form.

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