Fluctuating Work Week
Connecticut Appellate Court To Decide Whether FLSA “Fluctuating Work Week” – Resulting In Lower Overtime Pay – Is Permissible Under Connecticut Law.
By Hugh W. Cuthbertson
State and federal law require employers to pay their “non-exempt” employees overtime (calculated at one and a half times their “regular rate” of pay) for any hours worked in a week in excess of forty hours. However, there are different methods by which an employee’s regular rate of pay is calculated. Depending on which method is used, the amount of overtime due can be very different.
Neither federal nor Connecticut wage and hour law prescribes a specific method by which employers must pay their employees. Thus, employers may compensate their employees by means of a salary, time worked (hourly), task rate, piece rate, commission or other basis, so long as the compensation provided is at a rate at least equal to the minimum wage.
One form of payment permitted under federal law – the so-called fluctuating work week (“FWW”) methodology – allows the employer to pay a fixed weekly wage for a work schedule with variable or fluctuating hours, regardless of the number of hours worked.
Federal regulations promulgated under the Fair Labor Standards Act (“FLSA”) have for years permitted an employer to pay employees a fixed salary for fluctuating hours, if the following criteria are met: 1) the employee’s hours must fluctuate from week to week; 2) there must be a clear mutual understanding of the parties that the fixed salary is compensation (apart from overtime pay) for the hours worked each workweek, whatever their number, rather than working 40 hours or some other fixed weekly work period; 3) the amount of salary paid must be sufficient to provide compensation to the employee at a rate not less than the applicable minimum wage rate for every hour worked in those work weeks in which the number of hours worked is the greatest; 4) the employee must receive overtime compensation, in addition to the base salary, for all overtime hours worked at a rate no less than one-half the regular rate of pay. Indeed, the U.S. Department of Labor has consistently recognized the FWW methodology since the 1940s.
The rationale for the FWW is that employees who work such a schedule avoid unpredictable paychecks based on hours worked, since they are paid a fixed salary no matter how much time they spend on the job. As is explained below, however, the way in which an employee’s “regular rate of pay” is calculated for purposes of determining overtime differs under the FWW methodology from the calculation used for employees whose hours do not fluctuate and that difference can have enormous consequences.
Example #1: Standard Overtime Pay Calculation
By way of comparison, where an employee does not work an FWW, a standard forty-hour work week is used as the basis for the overtime rate calculation. For example, the “regular rate” of pay for an employee receiving a weekly salary of $1200 is determined by dividing 1200 by 40 – the legal limit of hours to be paid at straight time – to arrive at a regular hourly rate of $30. The employee would, therefore, be paid overtime at the hourly rate of $45 (one and one-half times $30). In a week in which this employee worked 60 hours, his or her total compensation would be $2100 ($1200 in base salary and $900 in overtime – 20 overtime hours times $45, the overtime rate).
Example #2: FWW Overtime Pay Calculation
However, the same employee working 60 hours on an FWW schedule would receive only $1400 total compensation. The difference results from the formula used to calculate the FWW employee’s regular rate of pay, which in turn impacts the rate of overtime (time and-a-half) pay. Although the FWW employee’s base salary – $1200 – remains the same, the FWW employee’s base salary is by agreement the amount paid for allstraight-time hours worked (even those in excess of 40). Therefore, the regular rate is calculated by dividing the base pay – $1200 – by the actual hours worked (in this example, 60). The result is a regular rate of $20 (not, as in example #1, $45) an hour. In addition, because the FWW employee’s base pay covers all 60 hours worked, overtime pay would consist of one-half of the $20 regular pay rate, or $10 for each hour of overtime. In a 60-hour week, therefore, the FWW employee’s total compensation would be $1400 ($1200 in base salary and $200 in overtime (20 overtime hours times $10, the overtime rate).
One important principle underlying the FWW is that the regular hourly rate of pay for straight time varies, depending on the total number of hours worked per week. Thus, if the actual number of hours worked on an FWW schedule in example #2 were 80, rather than 60, the regular hourly rate of pay would be reduced from $20 to $15 ($1200 ÷ 80 = $15), and the overtime hourly rate of pay would be reduced from $10 to $7.50. Because the FWW methodology results in a significantly lower overtime liability, the method used to calculate the rate of overtime pay is extremely important.
Connecticut law
Contrary to federal law, the FWW methodology is not mentioned in Connecticut’s wage and hour statutes or regulations as an exception to the requirement that overtime be calculated on the basis of a 40-hour workweek. And, until recently, there was little or no Connecticut case law at all regarding whether the FWW methodology was permissible under Connecticut law.
In 2006 a decision was issued by the New London Superior Court in Stokes v. Norwich Taxi, LLC, holding that an employer’s calculation of overtime using the FWW methodology had no basis under Connecticut law. Although the employer appealed to the Connecticut Supreme Court, the issue was not decided on appeal. The impact of the Superior Court’s decision in Stokes was, therefore, limited and it has never been cited by any court as precedent for this issue.
The FWW methodology was, however, the subject of a very thorough opinion issued in March 2012 by the Hartford Superior Court in Roach v. Moran Foods, Inc. The court held that the FWW methodology is in fact permitted under Connecticut law. In October 2012, the court granted the employee permission to appeal the ruling immediately, because of its importance to the determination of the outcome of the case. The employee filed his appeal to the Connecticut Appellate Court in December 2012, where the case is presently pending.
Importance
The decision in the Roach appeal will be important. It will be the first time that a Connecticut appellate court has determined whether the FWW methodology is permissible as a matter of Connecticut wage and hour law. Although the Connecticut Department of Labor has never taken a formal position on the FWW, it has tended to follow the U.S. Department of Labor on this issue and, therefore, has allowed the FWW methodology in cases where the employer can show that it has satisfied the criteria contained in the federal regulation. A Connecticut appellate court decision, however, should settle any doubts about this issue in Connecticut and provide clear guidance for employers who hire and compensate employees on an FWW basis.