The Department of Labor (“DOL”) recently revisited the issue of whether an employer may make deductions from an employee’s salary where the employer utilizes the fluctuating workweek method of compensation. Typically, employees who are not exempt from the requirements of the Fair Labor Standard Act are paid on an hourly basis. Employers are required to pay those non-exempt employees one-and-a-half times their regular rate of pay for the hours those employees work in excess of forty hours a week, and at least minimum wage.
The DOL, however, offers employers some flexibility with their non-exempt employees under the fluctuating workweek compensation plan. Employers using such a plan may pay their non-exempt employees a salary regardless of the number of hours they work each week—more or less than forty—as long as the employee receives at least minimum wage and is paid an additional half of his or her regular rate for all hours worked over forty. The regular rate is calculated on a weekly basis under this plan by dividing the employee’s salary by the total number of hours worked.
The fluctuating workweek method saves the employer money when calculating overtime. For example, consider a non-exempt employee who is paid a salary of $1,000 a week under the fluctuating workweek method. In a week where he works fifty hours, he will earn $1,100 for his time, because his regular rate is $20.00 per hour ($1,000 divided by fifty hours) and his overtime rate is calculated to be $10.00 per hour ($20.00 divided by two). However, an hourly employee paid $25.00 per hour (which would calculate out to $1,000 for a forty-hour week) will earn $1,375 in a week where he works fifty hours.
The drawback, of course, to using the fluctuating workweek method is the one outlined by the DOL in its May 16, 2006 Opinion. The fluctuating workweek regulation does not authorize regular deductions from an employee’s salary for absences by that employee. The regulation instead requires the employer to pay the fixed salary “for the hours worked each workweek, whatever their number.” An employer is permitted to take only disciplinary deductions from an employee’s salary for “willful absences or tardiness or for infractions of major work rules,” as long as the employee still earns minimum wage and his overtime compensation.
The DOL warned in its Opinion that employers should exercise much discretion in making such deductions, as frequent or consistent deductions may raise a red flag as to the validity of a fluctuating workweek plan. Following these guidelines, however, and strictly limiting the circumstances in which deductions are made, the fluctuating workweek method of compensating a non-exempt employee can be a cost-saving option for employers.
U.S. Dep’t of Labor Opin. FLSA2006-15 (May 16, 2006)