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Friday, June 10, 2016

The FLSA Half-Time Salary Alternative



By: Thomas Eden

From my presentations to HR professionals thus far, there is fear and gnashing of teeth surrounding the 100% increase in the threshold for meeting the Department of Labor Fair LaborStandard Act (FLSA) White Collar Exemption test of $47,476.00 annual salarythat takes effect on December 1, 2016.  

I thought it a good time to reveal to my readers the “The Fluctuating Rules for the Fluctuating Workweek” currently allowed under the FLSA as an alternative for those who will not meet the new salary level test. As you will see, there is a clear advantage to paying your newly christened salaried non-exempt employees via the fluctuating workweek method. However, you want to make sure you meet the FLSA’s four-pronged test to qualify. Paying a salary does not render an employee automatically exempt from the FLSA’s overtime requirements.

Employers have two very different options to pay salaried non-exempt employees:

First Option: under the standard method, you calculate the employee‘s weekly rate based on the salary divided by the number of hours worked that week, and then pay the employee 1.5 times that rate for all overtime hours. For Example, if a non-exempt employee earns a salary of $600 a week, and works 50 hours in a week, the employee would earn an additional $18 per hours worked over 40 ($600 / 50 = $12 per hour base weekly rate x 1.5 = overtime premium of $180). Thus, in this week, the employee would earn an additional $180 for the 10 hours of overtime, rendering their total pay for that week $780, not their customary $600 exempt salary.

Second Option: under the fluctuating workweek method, if during the course of 4 weeks this employee works 40, 37.5, 50, and 48 hours, the regular hourly rate of pay in each of these weeks is $15.00, $16.00, $12.00, and $12.50, respectively. Since the employee has already received straight-time compensation on a salary basis for all hours worked (assuming up to 50 in a workweek), only additional half-time pay is due. For the first week the employee is entitled to be paid $600; for the second week $600; for the third week $660 ($600 plus 10 hours at $6.00 or 40 hours at $12.00 plus 10 hours at $18.00); for the fourth week $650 ($600 plus 8 hours at $6.25, or 40 hours at $12.50 plus 8 hours at $18.75). Example taken directly from 29 CFR 778.114.

Common Sense Counsel: There is a clear economic advantage to employers using the fluctuating workweek calculation to pay overtime to salaried non-exempt employees. Under the FLSA, however, an employer cannot unilaterally implement the fluctuating workweek calculation. Instead, to pay salaried, non-exempt employees using this method, you must meet these four elements:

•  the employee’s hours must fluctuate from week to week;

• the employee must receive a fixed salary that does not vary with the number of hours worked during the week (excluding overtime premiums);

•  the fixed amount must be sufficient to provide compensation every week at a regular rate that is at least equal to the minimum wage; and

• the employer and employee must share a “clear mutual understanding” that the employer will pay that fixed salary regardless of the number of hours worked (best in a written document signed by the employee).

Under the FLSA, however, an employer cannot unilaterally implement the fluctuating workweek calculation. Employers realize a 66 percent savings on your overtime pay using this method. Do it correctly, otherwise your efforts to save some dollars in overtime could result in a costlier wage-and-hour lawsuit.

Tommy Eden is a partner working out of the Constangy, Brooks, Smith & Prophete, LLP offices in Opelika, AL and West Point, GA and a member of the ABA Section of Labor and Employment Law and serves on the Board of Directors for the East Alabama SHRM Chapter. He can be contacted at teden@constangy.com or 334-246-2901. Blog at www.alabamaatwork.com
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