The Pennsylvania Supreme Court has ruled that using the fluctuating workweek method to calculate overtime pay violates the Pennsylvania Minimum Wage Act ("PMWA").
Background:
The federal Fair Labor Standards Act (FLSA) requires employers to pay non-exempt employees an overtime premium for all hours worked over 40 in a workweek. The FLSA has approved certain formulas to calculate overtime pay, including the fluctuating workweek method which is used to determine overtime pay for salaried, non-exempt workers whose schedules vary week to week.
To use the fluctuating workweek method under the FLSA:
- An employee's hours must fluctuate from week to week (both above or below 40 hours);
- The employee must receive a fixed salary each workweek, regardless of how few or many hours they work;
- The employee and employer must have a clear and mutual understanding (which should be in writing) that the fixed salary is compensation (apart from overtime premiums) for the hours worked each workweek;
- The salary must meet or exceed the applicable minimum wage for all hours worked in those workweeks in which the number of hours worked is greatest; and
- The employee must receive overtime pay for hours worked in excess of 40 in a workweek. Since the salary is intended to compensate the employee at straight time rates for whatever hours are worked in the workweek, the regular rate will vary from week to week. To obtain the regular rate, divide the number of hours worked in the workweek into the amount of the salary.
Example:
A non-exempt employee earns a fixed salary of $920 per week and works 46 hours in a week. The total amount due to is $980 ($920 for the week plus $60 overtime pay).
- Regular Rate: ($920 per week)/ (46 hours per week) = $20 per hour
- Overtime Hours: 46 hours - 40 hours = 6 hours
- Overtime Pay: ($20 per hour) x (6 hours) x (1/2) = $60
Pennsylvania Supreme Court's Ruling:
In Chevalier v. General Nutrition Centers, Inc., the Pennsylvania Supreme Court ruled that calculating overtime using the fluctuating workweek method does not compensate employees one-and-a-half times their regular rate of pay for all time worked over 40 hours in a workweek, as expressly required by the PMWA.
The court ruled that when determining overtime pay under state law, the employee's regular rate of pay must be multiplied by one-and-a-half for all hours worked over 40, as opposed to the one-half used in the fluctuating workweek method.
Compliance Recommendations:
Pennsylvania employers should review their policies and practices to ensure non-exempt employees are properly compensated under the new ruling. Please contact your dedicated service professional with any questions.