Pennsylvania Supreme Court to Review Fluctuating Workweek Method for Overtime Compensation
The fluctuating workweek (FWW) method is a way for employers to calculate overtime pay for salaried employees who are eligible for overtime pay, but whose working hours fluctuate each week. The FWW method has two components that reduce the amount of overtime payments due to eligible employees: (1) the “regular rate” used to compensate the employee is based upon all hours worked during the workweek (instead of the standard 40 hours); and (2) the employee is only paid an overtime rate of one-half of the regular rate for any hours worked over 40 during that workweek (instead of the standard “time and a half” overtime requirement).
While the FWW method is allowed under the federal Fair Labor Standards Act (FLSA), employers must also consider state law requirements for the payment of overtime, and follow whatever rule is more favorable to employees. In Pennsylvania, the status of the FWW has been questionable for years. On December 22, 2017, the Superior Court of Pennsylvania issued the first state appellate decision on this issue, holding that a key component of the FWW method violates the Pennsylvania Minimum Wage Act (PMWA) and associated regulations. On July 16, 2018, the Supreme Court of Pennsylvania granted the defendant employer allowance to appeal from that decision.
The Pennsylvania Superior Court’s rejection of the FWW method was only partial. The court held that the first component of the FWW, that the “regular rate” be calculated by dividing the employee’s weekly salary by all hours worked during the workweek, comports with the PMWA. However, the court rejected the second component of the FWW method, which allows for the payment of only one-half of the regular rate for any overtime hours, because the PMWA states that employees’ overtime rate shall not be less than 1-1/2 times the employee’s regular rate of pay.
When the Pennsylvania Supreme Court finally weighs in, Pennsylvania employers will hopefully get definitive guidance on this issue. However, based on the text of the PMWA itself, and the trend from other Pennsylvania cases deciding this issue, it appears unlikely that the Court will accept the FWW method in its entirety. Therefore, Pennsylvania employers should carefully consider the risks of potential liability when deciding whether to use the FWW method of overtime compensation.