On May 20, the U.S. Department of Labor (DOL) declared a new rule for overtime and incentive-based employee pay as an alternative method to the Fair Labor Standards Act’s (FLSA) formula. This law allows for greater flexibility in determining overtime pay for salaried, nonexempt workers and clarifies additional pay as compatible with the fluctuating workweek method of compensation.
But beware: the fluctuating workweek method is not an exception to FLSA requirement and must be calculated using compliant rates under the FLSA. That said, this new formula is intended to ease employer’s efforts around managing labor costs and offer nonexempt employees greater consistency in compensation. Here’s everything you need to know about the new rule and how to utilize it for your hourly workforce!
Understanding the Fluctuating Workweek Method
The fluctuating workweek method works like this: divide your nonexempt employee’s fixed weekly salary by the number of hours they actually worked (this determines the week's base hourly rate). From there, you pay the employee an additional 0.5 times that base rate for each hour worked over 40 hours each week.
Bonuses, commissions, and other types of compensation can also be included without interfering with this formula. Given the challenges brought on by COVID-19, this ensures that you will be able to pay salaried employees in a wider range of circumstances without the same compliance concerns as before. In particular, you’ll have newfound flexibility for managing hazard pay, supplementing compensation for cut or extended hours, and bonuses for efforts during periods of low attendance.
When to Use this Method
To use the fluctuating workweek method, it is important to understand the qualifications involved, namely that your salaried, nonexempt employee’s hours must vary on a week-to-week basis. This will apply to your hourly workforce managers and administrative or HR-oriented staff. You can elect this method provided you also:
- Pay your employee a fixed salary each workweek, regardless of the number of hours they worked, to ensure they are paid at least minimum wage; and
- Establish with the employee that the fixed salary is compensation for all hours worked each workweek (apart from overtime premiums).
In addition to these federal requirements, you must ensure that your fluctuating workweek strategy also complies with state laws and requirements from local ordinances. Some states (Alaska, California, New Mexico and Pennsylvania) do not allow the use of this alternative workweek method. Others have yet to address it in their legislation, so be conscious of future changes!
Payroll and Tax Management with EPAY Systems
When it comes to fulfilling complex payroll needs, it helps to have a robust payroll system and team of experts fighting in your corner. That’s where EPAY comes in. Our Human Capital Management (HCM) system provides seamless payroll management and data compliance for the hourly, distributed workforce. That includes the ability to adapt under new legislative or compliance rules.
In order to use the fluctuating workweek method, you need to have accurate records of the time your employees spend working. With EPAY’s full-service workforce management solution, you gain accurate time and labor tracking, interactive data, and easily configurable pay rules for unique overtime needs, blended rates, and so on. Download our product overview for a complete summary.
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