By Eric B. Meyer
What is the fluctuating work week method of overtime compensation? Why is it no longer good in Pennsylvania? And why should you care?
Lets start at the top; What is the fluctuating workweek overtime compensation method?
If an employee is classified as non-exempt, that employee must receive at least one and one-half (1 ½) times their regular rate of pay for overtime (hours worked over 40 in a work week).
The fluctuating work week method of calculating OT compensation allows an employer to pay an employee a fixed, weekly salary, regardless of the number of hours worked. Overtime is then paid out at one-half times (½) the regular rate of pay (rather than one and one-half times — 1 ½ — the regular rate).
The regular rate of pay is determined by dividing the fixed salary by the total number of hours worked in a work week. This method of paying OT benefits the employer if employees generally work more than 40 hours per week (because the effective hourly rate is driven down).
Sort of confusing, huh? Well, don’t worry Pennsylvania employers, because it appears that you can’t use it in Pennsylvania anymore.
Why can’t Pennsylvania employers use it anymore?
Just check out this decision this week from, where a Pennsylvania federal court held that fluctuating work week method of calculating OT compensation, although legal under the federal Fair Labor Standards Act, violates the Pennsylvania Minimum Wage Act.
The court found the analysis of this prior decision convincing. Namely, a plain reading of the supporting regulations to the Pennsylvania Minimum Wage Act require that even if an employer reaches an agreement with its employees before work is performed as to a regular rate of pay, the employer must still pay OT at a “rate not less than 1 ½ times the rate established by the agreement.”
So much for an agreement to pay a fixed salary and only ½ times the regular rate for OT.
This was originally published on Eric B. Meyer’s blog, The Employer Handbook.