In late 2019, the Pennsylvania Supreme Court decided that the Pennsylvania Minimum Wage Act (“PMWA”) prohibited employers from using the fluctuating work week (“FWW”) method of calculating overtime pay owed to salaried workers. This decision affirms the Pennsylvania Superior Court’s findings and also comports with decisions of the federal district courts in Pennsylvania, which had previously rejected the FWW method of pay under Pennsylvania law.
When using the FWW method, which is permissible under the Federal Fair Labor Standards Act (“FLSA”), employees who are entitled to overtime receive a fixed-salary for all hours worked each week, regardless of the number of hours worked. For workweeks where the employee works in excess of 40 hours, they are entitled to overtime pay at a rate of 0.5 for each hour worked beyond 40 hours. The reasoning behind the FWW method of calculating overtime pay is that the employee is compensated for all hours in a work week with their normal salary, regardless of whether those hours are below or above 40. Therefore, only the half time portion of overtime is due for those hours worked in excess of 40.
The Pennsylvania Supreme Court in Chevalier v. General Nutrition Centers, found that the FWW method is not supported by the PMWA, which requires employers to pay “not less than 1 ½ times the employee’s rate of pay for all hours worked in excess of 40 hours in a workweek.” Employers may still calculate the regular rate of pay by dividing the employee’s salary by the number of hours actually worked in a week, but must pay 1.5 the regular rate for each hour over 40 hours worked in a workweek.
Consider the basic illustration below. Under the FWW method, the employee would receive an overtime rate of $10 for 10 overtime hours worked for a total of $100 in overtime pay.
After Chevalier, however, the same employee would now be entitled to an overtime rate of $30.00 (1.5x$20) for the same 10 overtime hours, bringing the overtime pay owed up to $300.00.
This decision affirms, after years of speculation, that the FWW method cannot be used in Pennsylvania. Employers using the FWW method, who were waiting for this final decision, may need appropriate changes to their pay practices immediately to comply with the PMWA. Failure to properly calculate and/or pay overtime to non-exempt employees exposes employers to liability under the PMWA and the Pennsylvania Wage Payment and Collection Law (“WPCL”). The PMWA and WPCL allow for penalties for non-compliance to include back pay, liquidated damages, and attorney’s fees.
