Fluctuating workweek pay schedules can be beneficial for both employers and employees alike, provided they are implemented correctly.  The pay schedule is under fire in Pennsylvania, however, due to the way it handles overtime compensation.

A fluctuating workweek is where an employee’s weekly work schedule involves a different number of hours in any given week, but the employee still earns a set weekly salary regardless of the number of hours he or she worked.  For instance, if the employee’s set rate of pay is $750 per week, then the employee would earn the $750 salary regardless of whether the employee worked 30, 40, or even 50 hours that week.  The key is that the employee’s weekly number of hours worked must fluctuate above and below the 40 hour per week threshold to be eligible—the arrangement must benefit employer and employee alike.

Employees appreciate this arrangement since it can be easier for them to plan out their monthly expenses and budget their money since they receive a steady income stream.  Certain employers choose to use the arrangement since it can save them money on labor costs and may be more administratively efficient to calculate than traditional hourly rates of pay.  The fluctuating workweek is typified by seasonal workers like landscapers or construction workers whose weekly schedule may be sparse in inclement weather, but may become lengthy when weather is cooperative and conducive to longer days.  Thus, both parties can receive the benefit of greater or lesser work weeks since the pay remains static.

To this end, the employee is not required to make up any hours when he or she works fewer than the 40-hour per week threshold, and the employer is not required to increase the set weekly pay for hours worked over the 40 hour per week threshold beyond any overtime compensation earned.  There is not typically a minimum monthly hour requirement for employees.  Essentially, employees make more money per hour the fewer hours that they work, but employers make it up on the back end by potentially paying less when the employee enters into overtime pay.  This arrangement may no longer be a viable option in Pennsylvania, however, as explained later in this article.

To institute this type of pay schedule, an employee’s hours must actually fluctuate on a week-to-week basis.  This could be due to the nature of work involved or the particular way that an employer schedules its employees.  There also must be a mutual understanding about how the employee will be paid.  An employer cannot decide to unilaterally implement a fluctuating workweek pay schedule without fully informing the employee of what this means for his or her pay.  Further, the employee’s hourly wage cannot drop below the minimum wage for any given week.  The hourly wage is calculated by taking the employee’s set weekly salary and dividing it by the number of hours worked in a given week.  This number cannot fall below the $7.25 federally mandated (and Pennsylvania mandated) minimum wage.  Employers should therefore be careful to pay weekly salaries high enough so that this can be accomplished or ensure that the employee does not work too many hours.  To this end, lower level management positions usually qualify since these positions tend to garner higher wages than entry-level jobs.

Any hours worked above the 40 hour per week threshold still qualify for overtime pay, but there are differences in how this rate may be calculated depending on the state.  According to the federal regulations under the Fair Labor Standards Act (FLSA), overtime pay may be calculated as the employee’s salary plus 0.5% of the hourly rate that the employee earns.  For example, if the employee earns $750 per week and works 50 hours in a given week, then the employee’s hourly rate of pay would equal $750 ÷ 50, or $15 per hour.  The extra 10 hours that the employee worked over the 40-hour threshold would qualify for overtime pay, or 0.5% x $15 per hour x 10 hours worked.  This translates to $75 worth of overtime pay due to the employee in addition to his or her weekly salary.

The federal regulations contrast with traditional notions of overtime pay under the FLSA of time and a half (1.5%), which would translate to $225 in overtime pay for the example above.  This is why many employers find the pay schedule appealing to save on overtime costs.  In Pennsylvania, however, the Superior Court recently decided that employees are still entitled to time and a half under a fluctuating workweek pay schedule for any weeks that exceed the 40-hour threshold.  The case is Chevalier v. General Nutrition Centers and is currently pending on appeal before the Pennsylvania Supreme Court, so it remains to be seen whether Pennsylvania’s interpretation will stand.  So in the interim, to be safe, employers are advised to consider paying time and a half for employees working overtime so as not to be liable for any deficiencies that may be owed to fluctuating workweek employees.

With contribution from Sarah Rothermel, J.D. Widener Law Commonwealth.