The current prevalence of lawsuits for unpaid overtime compensation under the Fair Labor Standards Act (“FLSA”) by employees who claim they were misclassified by their current or former employer as “exempt” from overtime has been well-documented. These lawsuits continue to present challenges to employers, not just in terms of the burdens and costs of defending the cases, but in the uncertainty of the potential financial exposure. As our colleagues have previously reported (here and here), there are two methods in which the employees can be compensated for the allegedly unpaid overtime wages in such a case. Under the FLSA, overtime compensation for non-exempt employees is computed at “a time and half” rate for hours worked in excess of forty in a week. In appropriate situations, however, when the employees have received a fixed salary for all hours worked (which is frequently what has occurred in a misclassification case because the employer has treated the employees as exempt from overtime), the overtime compensation owed to non-exempt salaried employees can and should be calculated based on the “half-time” or “fluctuating workweek” method. This method of calculation can dramatically decrease the potential damages in a misclassification case. Instead of dividing the weekly salary by forty to determine the regular rate of pay and paying 1 ½ times that rate for every hour worked in excess of forty, the weekly salary is instead divided by the actual number of hours the employee worked each week (in other words, the more overtime the employee worked, the lower the regular rate), and then paying an additional ½ of that rate for every hour worked in excess of forty in a week rather than 1 ½ times that rate. Conceptually, the salary pays straight time for all weekly hours, and only additional half-time is due for weekly hours over 40 to pay the time-and-one-half required by law.
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