DOL Revises Regulation on "Fluctuating Workweek" Method of Calculating Overtime

May 27, 2020

The U.S. Department of Labor has revised its regulation on calculating overtime compensation for salaried, non-exempt workers whose work hours vary from week to week. This is known as the “fluctuating workweek” method of calculating overtime and it has been a source of confusion in recent years. The revisions clarify important aspects of the regulation and include examples to illustrate its application.

The final rule was issued on May 20, 2020. The regulation is 29 CFR §778.114. The DOL summarizes the changes and provides a link to the regulation here.

One issue has been whether bonuses, commissions, and other payments made in addition to the fixed salary are consistent with the fluctuating workweek method of compensation. For decades it was the DOL’s position that such additional payments are consistent with the fluctuating workweek method. However, in 2011 the DOL appeared to reverse its position.

The DOL now reaffirms that payments made in addition to the fixed salary (including bonuses, premium payments, commissions, and hazard pay) are compatible with the fluctuating workweek method of compensation. Such supplemental payments must be included when calculating the employee’s regular rate of pay, unless they are excludable under section 7(e) of the FLSA.

Another question was whether an employee’s hours must sometimes fluctuate below 40 in a workweek. The regulation requires that “the employee work hours that fluctuate from week to week.” The DOL has clarified its position that “there is no requirement that the employee’s hours of work must fluctuate below forty hours per week. The Department has consistently stated that the fluctuating workweek method remains appropriate even when it is only the number of overtime hours that fluctuate.”

The Executive Summary to the final rule states that the DOL “believes this rule will allow employers and employees to better utilize flexible work schedules. This is especially important as workers return to work following the COVID-19 pandemic.”

Employers should remember that the FLSA does not preempt state law. States are permitted to enact stricter requirements, such as a higher minimum wage. When federal and state wage and hour laws conflict, employers are required to follow the law that is most beneficial to the employees. Colorado’s COMPS Order #36 addresses the use of the “fluctuating workweek” method of calculating overtime and is consistent with federal law. Keep in mind, however, that Colorado law requires employers to pay overtime for any work in excess of: (a) 40 hours per workweek; (b) 12 hours per workday; or (c) 12 consecutive hours without regard to the start and the end time of the workday. Whichever of these calculations results in greater wages shall apply.