(a) An employee employed on a salary basis may have hours of work
which fluctuate from week to week and the salary may be paid him
pursuant to
an understanding with his employer that he will receive such fixed
amount as straight time pay for whatever hours he is called upon to work
in a workweek, whether few or many. Where there is a clear mutual
understanding of the parties that the fixed salary is compensation
(apart from overtime premiums) for the hours worked each workweek,
whatever their number, rather than for working 40 hours or some other
fixed weekly work period, such a salary arrangement is permitted by the
Act if the amount of the salary is sufficient to provide compensation to
the employee at a rate not less than the applicable minimum wage rate
for every hour worked in those workweeks in which the number of hours he
works is greatest, and if he receives extra compensation, in addition to
such salary, for all overtime hours worked at a rate not less than one-
half his regular rate of pay. Since the salary in such a situation is
intended to compensate the employee at straight time rates for whatever
hours are worked in the workweek, the regular rate of the employee will
vary from week to week and is determined by dividing the number of hours
worked in the workweek into the amount of the salary to obtain the
applicable hourly rate for the week. Payment for overtime hours at one-
half such rate in addition to the salary satisfies the overtime pay
requirement because such hours have already been compensated at the
straight time regular rate, under the salary arrangement.
(b) The application of the principles above stated may be
illustrated by the case of an employee whose hours of work do not
customarily follow a regular schedule but vary from week to week, whose
overtime work is never in excess of 50 hours in a workweek, and whose
salary of $250 a week is paid with the understanding that it constitutes
his compensation, except for overtime premiums, for whatever hours are
worked in the workweek. If during the course of 4 weeks this employee
works 40, 44, 50, and 48 hours, his regular hourly rate of pay in each
of these weeks is approximately $6.25, $5.68, $5, and $5.21,
respectively. Since the employee has already received straight-time
compensation on a salary basis for all hours worked, only additional
half-time pay is due. For the first week the employee is entitled to be
paid $250; for the second week $261.36 ($250 plus 4 hours at $2.84, or
40 hours at $5.68 plus 4 hours at $8.52); for the third week $275 ($250
plus 10 hours at $2.50, or 40 hours at $5 plus 10 hours at $7.50); for
the fourth week approximately $270.88 ($250 plus 8 hours at $2.61 or 40
hours at $5.21 plus 8 hours at $7.82).
(c) The ``fluctuating workweek'' method of overtime payment may not
be used unless the salary is sufficiently large to assure that no
workweek will be worked in which the employee's average hourly earnings
from the salary fall below the minimum hourly wage rate applicable under
the Act, and unless the employee clearly understands that the salary
covers whatever hours the job may demand in a particular workweek and
the employer pays the salary even though the workweek is one in which a
full schedule of hours is not worked. Typically, such salaries are paid
to employees who do not customarily work a regular schedule of hours and
are in amounts agreed on by the parties as adequate straight-time
compensation for long workweeks as well as short ones, under the
circumstances of the employment as a whole. Where all the legal
prerequisites for use of the ``fluctuating workweek'' method of overtime
payment are present, the Act, in requiring that ``not less than'' the
prescribed premium of 50 percent for overtime hours worked be paid, does
not prohibit paying more. On the other hand, where all the facts
indicate that an employee is being paid for his overtime hours at a rate
no greater than that which he receives for nonovertime hours, compliance
with the Act cannot be rested on any application of the fluctuating
workweek overtime formula.
[33 FR 986, Jan. 26, 1968, as amended at 46 FR 7310, Jan. 23, 1981]
