Under federal law, the fluctuating workweek (FWW) method may be used to calculate overtime pay for employees without a consistent hourly rate of pay, e.g., salaried employees whose work hours fluctuate above and below 40 hours per week or employees who receive commissions.
Using the FWW method, an employee’s “regular rate” of pay is calculated each week by dividing his total weekly pay (including any commissions) by the actual number of hours he worked that week. The “overtime rate” is calculated by multiplying this regular rate by 1.5. For example, if an employee has a weekly salary of $500 and works 50 hours in a given week, his regular rate is $10 per hour ($500/50), and his overtime rate is $15 per hour ($10 x 1.5). Because the employee has received only $10 per hour for each hour worked, he must be paid an additional $5 for each overtime hour to attain the required $15 per hour rate for all hours in excess of 40.
Just as under federal law, Connecticut requires that certain employees receive 1.5 times their regular rate of pay for overtime hours worked. Interpreting the state’s statutory provision, the state Department of Labor published Wage Order § 31-62-D4 (“Wage Order”), establishing that “[w]hen an employee is paid a commission in whole or in part of his earnings, the regularly hourly rate for the purpose of computing overtime shall be determined by dividing the employees total earnings by the number of hours in the usual work week[.]”However, this Wage Order applies only to employees in the “mercantile trade,” which generally has been defined as those employed in the retail sales industry.
In Williams v. General Nutrition, Inc., a group of managers at GNC’s retail stores claimed they were paid a base weekly salary plus commissions on premium merchandise sold. They also were paid overtime when they work more than 40 hours per week. According to the managers, their overtime pay was wrongly calculated using the FWW pay method. They argued the Wage Order directs that their pay be based on the number of hours they usually worked, as opposed to the number of hours they actually worked in a particular week.
The Connecticut Supreme Court agreed that the FWW pay method was not permitted with respect to retail employees subject to the Wage Order. The Court interpreted the plain meaning of the phrase “usual work week” to refer to the hours usually worked in a week, rather than the hours actually worked in a given week.
For example, in Williams, the plaintiffs usually worked 40-hour weeks. Therefore, the applicable regular rate would be determined by dividing their total weekly compensation (base salary plus commissions) by 40 and the corresponding overtime time would be 1.5 times that calculation. Under the FWW method, the regular rate would have been based on the number of hours a GNC manager actually worked during the week in question, which, in an overtime scenario, always will be greater than 40. Thus, using the FWW method in this case yielded a lower regular rate of pay and a correspondingly lower overtime rate than under a “usual” workweek calculation. Because an employee’s “usual” workweek and his “actual” workweek are not necessarily the same, the use of the FWW method is prohibited when calculating overtime pay for retail employees covered by the Wage Order.
Coverage: Retail employers with employees in Connecticut who are paid, in whole or in part, on a commission basis.
Effective: The Court’s opinion was issued on August 17, 2017.
Action Required: You should discontinue the use of the FWW method of calculating overtime for your retail employees who are covered by Wage Order § 31-62-D4.
As always please contact your Human Resources Business Partner if you have any questions.
Produced in cooperation with Jackson Lewis P.C.