Background: The US Department of Labor’s Wage and Hour Division (DOL) is attempting to provide clarity and predictability to one of the most confusing areas of wage and hour law – the fluctuating workweek. The Fair Labor Standards Act (FLSA) requires employers to pay non-exempt employees time and a half their regular rate of pay for hours worked over forty in each week. However, if certain conditions are met, the DOL allows employers to pay “a fixed salary for fluctuating hours” and overtime at a half-time rate. See 20 CFR 778.114. The general requirements for utilizing the fluctuating workweek method are: 1) an agreement with the employee to pay “a fixed amount” each week regardless of the hours worked, 2) that the employee’s hours fluctuate week to week, 3) that the fixed amount will be greater than the minimum wage for all hours worked in any given week and 4) the overtime rate is equal to half of “the amount of the salary” divided by the total hours worked in a week. The definition of the terms “fixed amount” and “amount of salary” within the regulation has led to disagreement among courts, and arguably the DOL itself, on whether any additional compensation would negate an employer’s ability to use this method of overtime computation. Where some courts have disallowed all bonuses and additional compensation, other courts attempt to resolve this by creating a dichotomy between “productivity based” (for example commissions) bonuses and “hours based” (for example night shift differential) bonuses, finding that only productivity bonuses are compatible with the fluctuating workweek method of compensation. However, there are bonuses (such as for retention, safety and referral) that do not fall neatly into either category. This confusion regarding additional compensation has dissuaded employers from utilizing this method of overtime compensation or not paying any supplemental compensation other than a fixed weekly amount. The DOL’s new proposed rule attempts to address this confusion. Continue reading →