Under the Fair Labor Standards Act (FLSA), non-exempt workers are entitled to overtime pay at the rate of 1.5 times their hourly rate for all hours worked in excess of 40 hours per week. However, some salaried employees with fluctuating schedules may be properly paid using the “fluctuating workweek” method of calculating overtime, which is sometimes referred to as “flex pay” (note that “flex pay” may have a different meaning with respect to public sector compensation plans). Flex pay is a type of fixed weekly compensation (with a variable overtime premium) that is sometimes available to employees who work a varying number of hours each week. Typically, some weeks will require more than 40 hours, and other weeks will require less than 40. Because certain conditions must be met, it is important to consult with an attorney before offering an employee flex pay.
What is Flex Pay?
Some employers pay nonexempt workers using the fluctuating workweek guidelines for overtime compensation published by the Department of Labor (29 C.F.R. 778.113). Under this method of payment, an employee receives a fixed weekly salary regardless of the number of hours worked. The employee also receives additional pay equal to one-half the regular rate for all hours worked over 40 hours in a workweek. However, the “regular rate” fluctuates because it is calculated by dividing the weekly wage by the total number of hours worked; put differently, the more hours worked, the lower the regular rate. This is often frustrating for employees who consistently work in excess of 40 hours per week because they see their overtime rate decrease as the number of overtime hours increases.
The reasoning behind this method is that the employer has already compensated the employee for all hours worked, even the hours above 40. Therefore, the salaried employee is only entitled to one-half the regular rate for any overtime work.
How Does Flex Pay Work?
Some salaried employees have a variable schedule; some weeks they work more than 40 hours and some weeks they work less than 40 hours. With flex pay, the employee receives their regular salary regardless of how many hours they work in a given week. For weeks in which an employee works more than 40 hours, that employee will receive extra pay equal to one-half their regular rate for each hour worked in excess of 40 hours.
Flex-pay has been approved by the Department of Labor, but with limitations. Although it is a useful method of pay for employees with irregular schedules, some employers use this method of payment to keep their costs down. Overtime pay is frequently miscalculated. Contact Parks, Chesin & Walbert to help you understand your options and explore which methods of pay are right for your situation. Attorneys at Parks, Chesin & Walbert are also available to advise you on issues related to wage calculations.
Important Legal Considerations
Both the employer and employee must clearly understand that the employee will receive a full salary regardless of the number of hours the employee works, even if the employee does not work a full 40 hours. The employee’s salary must be sufficient to meet the minimum wage requirements for the work weeks in which the employee works the greatest number of hours. For hours worked in excess of 40 hours in a work week, the employee is entitled to half the regular pay rate in addition to his regular salary.
Flex pay often comes up in wage and hour disputes related to employees who have been misclassified as exempt from overtime when they should have been considered non-exempt. Because exemption under FLSA depends mainly on an employee’s specific job functions rather than titles, it is important to classify employees correctly. Failure to do so can subject your workplace to costly wage and hour lawsuits.
Because the issue of a fluctuating work week is complicated, it is wise to consult with an attorney to make sure this method of payment is right for your particular employment situation.
Ask Parks, Chesin & Walbert About Flex Pay
The lawyers at Parks, Chesin & Walbert represent clients throughout Tennessee and Georgia in employment law matters. Because the issue of flex pay involves a case-by-case evaluation, we will examine all factors to determine whether flex pay is appropriate. We will give you a straightforward assessment of your situation and help you understand your legal options. Call us at 404-873-8048.
