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Acknowledgment of Salary Plan Constitutes Understanding of Fluctuating Workweek Pay

    Client Alerts
  • February 03, 2023

Many employers faced with large potential overtime costs elect to implement the fluctuating workweek pay plan for non-exempt workers. Under Department of Labor regulations, employers can pay a guaranteed salary for all hours worked by the employee. Instead of paying time and one-half the hourly rate for time worked in excess of 40 hours a week, the employer pays a half-time overtime premium that is determined by dividing the salary by the total number of hours worked that week. This plan can reduce overtime obligations by two-thirds or more.

Fluctuating workweek is not appropriate for all employees, and the plan can create a considerable accounting burden for the employer. Among other mandates, the fluctuating workweek rules require that the employee have a clear understanding of how they will be paid. A recent decision from the Eleventh Circuit Court of Appeals demonstrates how this requirement can be met.

In Hernandez v. Plastipak Packaging, Inc., the plaintiff claimed that he was unaware that his salary covered all hours he worked in a given workweek. In response, the employer introduced a written salary plan signed by the plaintiff, disclosing that he would be paid a fixed weekly salary as the straight-time portion of whatever hours he worked that week. The court concluded that this language demonstrated a clear mutual understanding that the plaintiff would be paid according to the fluctuating workweek method.

Employers that use fluctuating workweek should prepare a clear explanation of the pay plan, written in plain language, and containing a signed acknowledgment from the employee. Many employers go further, including an explanation of the pay plan as part of their employee orientation process. Fluctuating workweek can help control overtime expenses, but the plan requires careful preparation and implementation to meet federal wage payment requirements.