Posts Tagged ‘Fluctuating Workweek Method’

A federal court recently held that Pennsylvania law does not allow for the fluctuating workweek method of paying overtime, which means that Pennsylvania employers who compensate non-exempt employees pursuant to this method shoudl revise their practices ASAP.  If they don’t, such employers might find themselves embroiled in overtime class action claims.

Here’s what employers need to know.  Wage and hour requirements are mandated at the federal and state level.  The federal government sets threshold wage and hour requirements, but states can enact more stringent requirements.  For employers, this means that you have to constantly monitor whether you are in compliance with federal wage and hour requirements and state wage and requirements.  For example, the federal minimum wage rate for non-exempt workers is $7.25 per hour.  It just so happens that Pennsylvania’s minimum wage rate is also $7.25 per hour,  but California employers have to pay non-exempt employees more because California’s minimum wage rate is $8.00 per hour.

On the federal level, the Fair Labor Standards Act (“FLSA”) dictates overtime and minimum wage requirements.  The FLSA’s state law equivalent in Pennsylvania is the Pennsylvania Minimum Wage Act (“PMWA”).  The FLSA and PMWA are similar, but not identical.

For example, under the FLSA an employer may compensate non-exempt employees pursuant to the “fluctuating workweek” method of overtime compensation.  Under this method, an employee receives a guaranteed fixed weekly salary for all straight-time earnings, regardless of the number of hours worked, and an additional one-half of the employee’s regular rate for all hours worked over forty in the workweek.  This method lets the employer divide an employee’s weekly salary by the number of hours actually worked to determine the regular rate.  As long as the regular rate is more than the minimum wage, FLSA regulations allow the employer to compensate any hours worked beyond 40 with not less than one-half the regular rate.  Here’s how the fluctuating workweek method works:

Gerald is an exempt employee who receives a weekly salary of $400 dollars.  In week 1 Gerald works 41 hours.  Gerald’s rate of pay for week 1 is 9.76 per hour ($400 divided by 41 hours).  Since Gerald worked one hour beyond 40 in week 1, the employer is only required to pay Gerald $404.88 ($400 plus half of $9.76).  In week 2 Gerald works 50 hours.  Gerald’s rate of pay for week 2 is $8.00 per hour ($400 divided by 50 hours).  Since Gerald worked 10 extra hours in week 2, the employer must pay Gerald $440.00 ($400 plus (10 times half of $8.00).  The advantage to employers is that so long as the regular rate is more than the minimum wage, the employer only has to compensate any hours worked beyond 40 with not less than one-half the regular rate.  So, the more hours the employee works beyond 40 per week, the cheaper the labor rate becomes for the employer.

 

However, in Foster v. Kraft Food Grp. Inc. a federal court recently held that contrary to the FLSA’s regulations, the PMWA’s regulations do not allow payment of only an additional one-half of the regular rate for overtime hours pursuant to the fluctuating workweek method.  Instead, Pennsylvania employees compensated under this method must receive an additional one and one-half of their regular rate for overtime hours.  For example, using the same example used above, in week 2 Gerald would have to be compensated $520 for the week ($400 plus ((1.5 x $8.00) x10).

On the heals of this decision, Kraft Foods Inc. agreed to pay $1.75 million to resolve two proposed class actions filed by employees who alleged that Kraft’s use of the federal fluctuating workweek method to calculate overtime violated the Pennsylvania Minimum Wage Act.  Because wage and hour claims can expose employers to costly class actions, employers should pay careful attention to how they calculate overtime payments.

The attorneys at Harmon & Davies are well versed in wage and hour requirements and routinely defend employers in wage and hour actions.

This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice. Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.

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