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Seasonal pay stability

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  • SIMA
- Posted: July 5, 2018
By Jared Nusbaum

For employees who work in snow and ice management, it can be hard to predict a typical workweek schedule during the winter season. 

When employees have unpredictable work schedules, companies may be able to save on overtime by adopting a payment model called the fluctuating work week (FWW) under the federal Fair Labor Standards Act (FLSA). The FWW involves paying workers a base rate for each week they work, similar to a salary. Overtime must still be paid, but the rate is lower than the traditional rate for hourly employees. 

FWW requirements
The U.S. Department of Labor has set out four requirements to properly compensate employees using the FWW method:

Fluctuation required. The employee’s hours must actually fluctuate week to week. The hours need not fluctuate by a large amount, but the worker’s hours can’t be factory-style scheduling of a block of hours that never change. 

Salary must be fixed. The employee must receive a fixed salary that does not vary with the number of hours worked during the week, excluding overtime. Like salaried employees, FWW employees receive a flat amount for each week in which work is performed. Even if the employee only works one hour in a given week, they still must be paid the full weekly base pay. This weekly payment covers all work up to 40 hours in a workweek. 

Base pay must at least equal minimum wage
. The fixed salary amount must be sufficient to provide compensation every week at a regular rate that is at least equal to the minimum wage, even if they work a large amount of hours in a week. It should look like this:

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Overtime rules apply
. The employee must receive at least 50% of their regular hourly pay for all overtime worked. For all hours over 40 in a workweek, the employee must be paid “half time.” This is calculated as follows:

  1. Base pay divided by the number of hours worked in a week = half-time rate 
  2. Half-time rate multiplied by the number of hours over 40 in a workweek = overtime premium total for that workweek
  3. Base pay + overtime premium total = total compensation due to the employee for that workweek 

Keep in mind that the half-time pay changes based on the total number of hours worked in a given workweek. 

Mutual understanding required
. The employer and employee must share a clear understanding that the employer will pay that fixed base rate, regardless of the number of hours worked. The employee must understand the terms of their compensation. This does not mean that they must be able to calculate to the penny how much they will earn in a given week, but they must have a general understanding of the system. They must especially understand that they will earn the same base rate for every week in which they work and that half time is lower than traditional time-and-a-half overtime compensation. 

Common problems
Employee fear. New compensation systems can make employees wonder if they’re being shortchanged. Point out that the biggest employee benefit with the new plan is the security of a reliable paycheck. Every pay period will have the same amount of base pay on the check, even if the employee only works 20 hours that week. The additional half-time overtime pay will still be a bonus during busy times.

The accountant doesn’t get it. The FWW is a non-traditional plan and doesn’t fit neatly into most companies’ pre-existing payment systems. However, it’s actually easy to create a spreadsheet to automatically calculate hourly wage and half-time overtime by inputting the weekly base pay rate. It may result in a small amount of increased data entry for the accounting department, but the savings are still significant. 

The FWW method is a useful tool for seasonal industries. When properly implemented, it can save a company thousands of dollars per year in overtime payments to employees. 

Jared Nusbaum is an attorney with the law firm of Zlimen & McGuiness, PLLC in St. Paul, MN. His practice areas include employment law, small business law, litigation, and bankruptcy. Email him at jnusbaum@zmattorneys.com.

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