Last week the U.S. Department of Labor updated a rule regarding the flexible workweek. It allows employers to pay bonuses and incentives and still use the fluctuating workweek calculation. If you do not know what a “fluctuating workweek” is, you are not alone. Most employers do not use it because it can demotivate employees.
A fluctuating workweek is intended for those employees whose hours fluctuate from week to week, both above and below 40 hours a week. Employers determine a set salary for all workweeks, and then that is the base payment for all hours worked in a week. Any overtime worked is paid at an additional half-time rate rather than 1.5 times the hourly rate.
The more hours an employee works, the less they make per hour, which is why it is demotivating for many employees. It works best if an employer has tasks that need to be completed quickly, and if the employee can do that, the employee can work less than a full forty hours and still be paid the same weekly rate.
During the previous administration, the rule was changed so that those employers paying bonuses or incentive pay could not take advantage of this method of payment. With this rule change, this is no longer the case. Two factors that are still true and why this method can be administratively complicated:
- Employers must keep track of all hours and then change the hourly rate each week to calculate overtime due at .5 times the regular rate. For example, if an employee earns $800 per week and works 40 hours, the rate is $20; however, if the employee works 80 hours, the hourly rate is only $10 per hour. In the second example, you would multiply the regular rate ($10) by the number of overtime hours (40) by .5, and the overtime earned would be $200. (Of course, this would violate the minimum wage in several states and further complicate the calculation. You would need to bring the employee up to minimum wage and then determine the amount of overtime due.)
- Employers must add any bonus or incentive back into the regular rate to determine the new overtime amount as they do when paying hourly in a standard workweek. If an employee earned a bonus every quarter to incent an employee, the employer would need to spread that amount over the last quarter to determine how much it increased the hourly rate. Then the employer would need to pay bonus on the overtime amount. Imagine an employee receives a $1200 bonus for 12 weeks of work. That would mean that each week the employee earned an additional $100. If the employee worked 50 hours in one of those weeks, as an example, the $100 would be divided by 50 for a bonus rate of $2.00 per hour. Overtime (.5) on $2.00 each overtime hour (10 hours) would be $1.00, so the employee would receive an additional $10.00 for that week.
You may want to take a close look at this rule change to see if it would help in your workplace. If you have questions, please reach out to the staff at Employers Council. We can walk you through examples and help you decide if it would help or hinder you.