Court Rules That Defendant Correctly Paid Plaintiff Under the “Fluctuating Workweek” Method

A recent SDNY decision, Stein v. Guardsmark LLC, explains how employers may comply with the “fluctuating workweek” method of paying overtime.

Plaintiff Esther Stein served as the secretary to the president (defendant Ira A. Lipman) of defendant Guardsmark, which provides private security services. She claimed that she was denied overtime premiums to which she was entitled.

Defendant countered, claiming that it properly paid plaintiff under the FWW method.  The court agreed with defendant.

The FWW method is:

one of two approved methods in the Department of Labor’s FLSA regulations for calculating the regular rate at which an employee is employed for overtime purposes, and is intended to cover cases in which a salaried employee whose hours of work fluctuate from week to week reaches a mutual understanding with his employer that he will receive a fixed amount as straight-time pay for whatever hours he is called upon to work in a workweek, whether few or many.

It is specifically authorized by the Code of Federal Regulations, Title 29, section 778.114.  That section, titled “Fixed salary for fluctuating hours”, provides (in pertinent part):

An employee employed on a salary basis may have hours of work which fluctuate from week to week and the salary may be paid him pursuant to an understanding with his employer that he will receive such fixed amount as straight time pay for whatever hours he is called upon to work in a workweek, whether few or many. Where there is a clear mutual understanding of the parties that the fixed salary is compensation (apart from overtime premiums) for the hours worked each workweek, whatever their number, rather than for working 40 hours or some other fixed weekly work period, such a salary arrangement is permitted by the Act if the amount of the salary is sufficient to provide compensation to the employee at a rate not less than the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours he works is greatest, and if he receives extra compensation, in addition to such salary, for all overtime hours worked at a rate not less than one-half his regular rate of pay. Since the salary in such a situation is intended to compensate the employee at straight time rates for whatever hours are worked in the workweek, the regular rate of the employee will vary from week to week and is determined by dividing the number of hours worked in the workweek into the amount of the salary to obtain the applicable hourly rate for the week. Payment for overtime hours at one-half such rate in addition to the salary satisfies the overtime pay requirement because such hours have already been compensated at the straight time regular rate, under the salary arrangement.

There are five elements that must be satisfied in order for an employer to utilize this method:

  1. the employee’s hours fluctuate from week to week;
  2. the employee receives a fixed weekly salary which remains the same regardless of the number of hours the employee works during the week;
  3. the fixed amount is sufficient to provide compensation at a regular rate not less than the legal minimum wage;
  4. the employer and the employee have a clear mutual understanding that the employer will pay the employee a fixed salary regardless of the number of hours worked; and
  5. the employee receives a fifty percent (50%) overtime premium in addition to the fixed weekly salary for all hours worked in excess of forty (40) during the week.

Here, the defendant satisfied all five elements and was therefore entitled to summary judgment dismissing plaintiff’s complaint.

For example, as to the first element, plaintiff’s hours “fluctuated” because they varied from day to day, even if they generally amounted to 50-55 hours per week.

As to the second element, plaintiff “received a fixed weekly salary” and was “employed on a salary basis” within the meaning of 29 CFR 541.602, even though she was paid some overtime and was required to record her hours and stay at her desk.

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