The federal Department of Labor (DOL) has long interpreted the Fair Labor Standards Act (FLSA) to allow an employer to pay a nonexempt employee a fixed salary for all hours worked in a workweek and “half-time” of an employee’s regular rate for all hours worked greater than forty in a workweek, instead of “time-and-a-half” pay for those hours. This method of pay — called the “fluctuating workweek method” — may be used when a nonexempt employee’s weekly hours vary.
In Hernandez v. Plastipak Packings, Inc. (January 2023), the Eleventh Circuit reaffirmed this method of payment. Hernandez worked for Plastipak for a fixed weekly salary. While Hernandez’s base salary didn’t vary, the hours he worked varied. And when he worked more than 40 hours in a workweek, he was entitled to overtime pay “at a rate not less than one and one-half times [his] regular rate” of pay. 29 U.S.C. §207(a). Because he had no fixed hourly rate (because he was paid a salary regardless of the hours he worked in a workweek), Plastipak used the fluctuating workweek method to calculate his overtime pay.
Under this method of pay, Plastipak would satisfy the FLSA by (1) dividing his weekly salary by the total number of hours worked (in order to calculate the employee’s regular hourly rate for that week) and then (2) multiplying one-half of that regular rate by the number of overtime hours the employee worked that week. To simplify its calculations, however, Plastipak always divided his weekly salary by 40 hours — not the total number of hours he worked that week. Then, it halved that rate and multiplied it by the number of overtime hours worked that week to determine his overtime pay.
This hypothetical best explains what Plastipak could have done versus what it did:
- What Plastipak could have done — Employee earns $1000/week. In week one, he works 50 hours. Thus, his “regular rate” for that week is $20/hour ($1000/50 hours). Therefore, under this fluctuating workweek method, Employee would be entitled to $100 in overtime ($20 x .5 x 10 hours of overtime).
- Plastipak follows more generous payment calculation — Employee earns $1000/week. In week one, he works 50 hours. Plastipak used a 40-hour workweek to determine his “regular rate,” i.e., $1000/40 hours = $25/hour. Thus, Employee was entitled to $125 in overtime ($25 x .5 x 10 hours of overtime).
Hernandez first claimed he was entitled to one and one-half times his regular rate. The court held that the parties had “a clear mutual understanding” that Hernandez’s fixed salary was compensation for the hours worked each workweek, “whatever their number.” Plastipak had a written policy that Hernandez signed, stating that he would be paid a fixed weekly salary for a fluctuating workweek and then repeated that he would receive a fixed weekly salary as straight time pay for whatever hours he was called upon to work in a workweek. The court held that this policy evinced a clear understanding that he would be paid a fixed salary for all the hours he worked in a workweek, whether fewer or greater than 40 hours.
Next, Hernandez attacked Plastipak’s more generous method of calculating overtime, stating that it was only permitted to calculate overtime by dividing a fixed base salary by the total number of hours worked — not a set 40 hours, like Plastipak did. Rejecting this argument, the court explained that the overtime rate in the FLSA was a floor, not a ceiling. The FLSA and its regulations allow employers to pay more than they are required to for overtime hours. The method Plastipak used to calculate overtime always resulted in an overtime rate that was more than what the standard fluctuating workweek method would have produced. Thus, the court entered judgment in Plastipak’s favor.
If you have any questions regarding this Alert, please contact the author, Jeff Mokotoff, partner in our Atlanta office, at jmokotoff@fordharrison.com. Of course you can also contact the FordHarrison attorney with whom you usually work.