Some employers use the fluctuating workweek (FWW) pay plan to help manage overtime expenses. Under FWW, the employer guarantees the employee a weekly salary for any hours worked in a given week. If the employee works more than 40 hours, that salary is divided by the total hours worked, and a half-time overtime premium is paid for each hour over 40. FWW can significantly reduce overtime expenses in comparison to traditional time and one-half pay.

In prior years, the U.S. Department of Labor has gone back and forth on the issue of whether an employer using FWW can also pay employees incentives or other premium pay. During the previous administration, DOL reversed its view that compensation under FWW was limited to the fixed salary. Earlier this month, the Eleventh Circuit Court of Appeals (which includes Georgia) agreed, reversing a judgment in favor of employees who challenged their employer’s use of FWW.

In Hernandez v. Plastipak Packaging, Inc., the plaintiff alleged that the employer’s use of incentive bonuses and a premium for employees who work on holidays violated FWW regulations and, therefore, required the employer to recalculate overtime hours worked at the time and one-half rate. Following a district court decision in the plaintiff’s favor, the employer appealed the decision to the Eleventh Circuit. The appeals court agreed with the employer, holding that employers using FWW can also pay incentives and other premiums to employees.

The Eleventh Circuit noted that the FWW rules require that the employer pay a fixed salary, not that it provide a fixed total amount of compensation. Salary is only a subset of total pay. The court also refused to draw a distinction under FWW between bonuses and shift premiums. This reasoning differs from prior decisions by the First and Fifth Circuits, which do not allow use of shift premiums for employees paid using FWW.

FWW is not the best option for all employers. The plan imposes a significant payroll accounting burden, and it should only be used where the employee’s hours actually fluctuate. However, for many employers, FWW is a pay option worth considering.