The requirements of paying overtime to a non-exempt employee pursuant to the fluctuating workweek method are generally straightforward and set forth in 29 C.F.R. 778.114: (1) the employee’s hours must fluctuate from week to week; (2) the employee must receive a fixed salary that is sufficient to provide compensation at a regular rate that is not less than minimum wage; and (3) the employer and the employee must have a clear, mutual understanding that the employee will receive the fixed salary regardless of the number of hours worked. The last requirement, however, can serve as a fertile ground for dispute, when employees challenge whether they understood that their overtime pay would be computed consistent with the fluctuating workweek method. Rejecting a plaintiff’s post-employment characterization of the understanding, a Kansas District Court recently ruled that the fluctuating workweek method properly was properly utilized based on the parties’ course of conduct during employment. Mitchell v. Firstrust Mortg., Inc., 2013 U.S. Dist. LEXIS 16563 (D. Kan. Feb. 7, 2013).
In Mitchell, plaintiff did receive a fixed salary for all hours of work, and testified that she understood she received a fixed base salary. In challenging the fluctuating workweek method, she claimed after the fact not to have understood the specifics of the fluctuating workweek method, in that she didn’t understand that her salary would be divided by total hours worked to determine her regular rate, with an additional "half time" premium paid for overtime hours based on that rate. Rejecting this post hoc characterization, the court observed that the nature of the understanding is not specific to the fluctuating workweek calculation, but rather limited to the requirement that the employee understand they will receive a salary for all hours. Since plaintiff conceded at deposition she understood her base salary to be $28,000 per year initially, and then later rose to $29,500, that was all the understanding (along with the requisite fluctuating hours) the court required.
While Mitchell is a positive result for employers within Kansas and other states within the Tenth Circuit, employers nationwide should implement the fluctuating workweek method only after an analysis of its requirements and the proposed method of compensation has been conducted by counsel. State law also must be reviewed as certain states, such as Pennsylvania, prohibit use of the payment method under state law.