The U.S. Labor Department's April 5 Final Rule attempts to transform the principles of fluctuating-workweek pay plans in two ways. Remarkably, DOL apparently plans to do so, not by facing up to these matters by actually proposing a straightforward revision of the relevant interpretative provision at 29 C.F.R. § 778.114, but instead via remarks in the preamble accompanying the Final Rule.

The Basic Concepts

A non-exempt employee's FLSA overtime pay must be based upon his or her regular hourly rate. This is determined by dividing the employee's total compensation for a workweek by the total number of hours worked for which the compensation was paid. See 29 C.F.R. § 778.109.

Under a fluctuating-workweek plan, the employee receives a salary that is paid as straight-time compensation for all of his or her hours worked in a workweek, however many or few, including hours worked over 40. Thus, for overtime hours, the employee is due only an additional one-half of the rate obtained by dividing all of the workweek's hours into the salary (this rate can never be less than the minimum wage, of course). The employee's regular hourly rate therefore fluctuates, that is, it decreases as his or her hours worked increase, and vice versa. The employee is also due additional overtime premium for most other compensation he or she receives for an overtime workweek.