The Fluctuating Workweek Factsheet

Published

What it is, when to use it, and how to calculate it

If you’ve never heard of the fluctuating workweek, don’t feel bad. You’re not alone. It might sound like a week that floats around on your calendar like spring break, or a week that becomes longer or shorter depending on the month, like a leap year.

But in reality, it’s actually a method an employer can use for calculating overtime, and it’s legal under current Fair Labor Standards Act (FLSA) regulations (though some state labor laws do prohibit it).

According to the Society for Human Resource Management (SHRM), “Employees who are entitled to overtime pay receive a fixed weekly salary, which is divided by the actual number of hours an employee worked in the week to determine the week’s base hourly rate.” Employees then receive an additional 0.5 times their base rate for every hour they work beyond 40 in the workweek.

This is a different approach from the traditional method for calculating overtime, where employers pay workers an hourly rate, then pay them 1.5 times that hourly rate for any hours worked over 40.

 

Math it out

Say an employee works 43 hours, at an hourly pay of $10 per hour.

The old way

For those three extra hours, the employee would make 1.5 times their hourly rate, meaning they’d make $15 per hour, or $445 for the week.

 

The new way

Rather than being hourly, the employee has a fixed weekly salary of $400. Divide that salary by the actual number of hours worked (43), to get the week’s base hourly rate — in this case, $9.30. Then the employee gets an additional 0.5 times that number for the three extra hours worked. That’s $4.65 extra per additional hour (three, in this case), for a total of $413.95 for the week.

The new overtime calculation for the fluctuating workweek

 

Pros and cons of the fluctuating workweek

Taken at face value, the fluctuating workweek does not sound good for employees. Who would choose to earn less money for working overtime? But consider this: This type of payroll is designed for folks whose work schedule fluctuates from week to week. Some weeks, the employee will make less than 40 hours. Some weeks, more than 40 hours. In both scenarios, the employee would earn right around $400, and no less.

With that frame of thinking in mind, the fluctuating workweek might sound like a solution designed for today’s modern workforce. Employees value flexibility — more so than even performance-based raises or discretionary bonuses, according to a recent QuickBooks survey. Companies may find they’re in competition with other employers to provide work-from-home solutions and alternatives to the typical 9-5 schedule.

But problem-solving for technology, schedules, security, and logistics isn’t all that employers have to think about. With more flexibility comes the next logical question: How do you pay a traditionally hourly employee who has more flexibility and freedom?

Here are a few of the pros and cons of the fluctuating workweek.

Pros

  • Learn more.

    Similar to salaried employees, employees paid under the fluctuating workweek system will essentially receive around the same sum each week, allowing them to better budget their money. That’s a big deal to the 1 in 5 individuals who depends on payday to help them get out of debt.

  • Employers will likewise be able to budget better, as less fluctuation in payroll means fewer ups and downs for the company’s finances.
  • For employees, the fluctuating workweek means failing to work a full 40 hours some weeks isn’t such a problem. Like salaried employees, these workers still receive — and must receive — a fixed weekly salary.

Cons

  • Overtime is less financially significant, and thus less attractive to employees. For those who regularly put in 50 hours per week, such a system would not be appealing.
  • Employers may be bothered by the fact they’re sometimes paying employees more per hour than they would have before because employees will occasionally work fewer than 40 hours a week.
  • Compliance issues come with the territory. Employers will want to first consult a payroll expert and attorney to make sure they know what they’re getting into and how to best implement the new system prior to putting the fluctuating workweek in place.

 

TSheets users and the fluctuating workweek

The good news for TSheets users is that calculating overtime hours and payroll based on the fluctuating workweek is easy — at least on our end. Simply pull up the TSheets Pay Rate Engine to track employee hours and overtime as usual, then export the data to your payroll software of choice. Depending on which provider you use, you may want to contact that company’s customer care or compliance team for assistance in configuring settings.

The fluctuating workweek can be a bit confusing, but for employers and employees both, it’s worth taking the time to understand. With a little research and practice, for those who choose to try it out, it’ll soon be as easy as any other business operation.

 

Need to track employee time according to the fluctuating workweek?
TSheets can help.

 

Disclaimer: This material has been prepared for informational purposes only and was accurate at the time of publication. It is not intended to provide, and should not be relied on for, tax, legal, employment, or accounting advice. You should consult your own tax, legal, employment, and accounting advisors before engaging in any transaction.

4 Comments

  1. Sue Wright` says:

    This does not make sense to me. The practice with a salaried employee is that they will always receive the base pay, using your example, $400.00 each week. So this method is just calculating the overtime differently and the employee is getting less OT pay, 1.5 vs .5. I don’t see how it evens anything out, unless it means the base pay is always changing according to hours worked. What am I missing here?

  2. Danielle Higley says:

    Hey, Sue! Thank you for the comment. This is a pretty complicated subject — one I’ve only just started to study — but here’s my interpretation:

    The employees who would be working under a fluctuating workweek are hourly, not salaried employees (sorry if that wasn’t made super clear). As you said, salaried employees receive the same amount every week, and many (but not all) are not eligible for overtime. The benefit for them is that they get a fixed salary they can count on each week. So even if they work 45 hours one week, but just 30 hours the next, they still get paid the same amount each week.

    The fluctuating workweek creates a similar type of benefit for *hourly* employees. Like a salaried worker, an hourly worker could use the fluctuating workweek to help them maintain a more regular weekly paycheck. Instead of getting a $350 paycheck half the time and a $450 paycheck the other half, they might make $400 all the time.

    The reason they would make less for hours worked over 40 is that sometimes they’re not working 40 hours in a week, but, like a salaried employee, they’re still making the same amount as they had when they *were* working 40 hours a week.

    So say you’re an hourly employee who works somewhere between 32 and 48 hours a week. Sometimes it’s more, sometimes it’s less, so some weeks, you make $350, and some weeks, you make $450. Your boss asks if you’d like to be on a fluctuating workweek. Instead of making $350 sometimes and $450 other times, you’ll make a standard $400 a week. On weeks that you work *less* than 40 hours, you’ll still make $400 a week (which, let’s face it, isn’t necessarily great for your boss), but on weeks when you work *more* than 40 hours, you’ll still make $400, *plus* you’ll get a little extra for every hour over 40.

    But because you get paid $400 even when you work less than 40 hours, your overtime isn’t as nice as it used to be. Instead of getting paid 1.5 times your hourly rate, you’ll only get .5 times that hourly rate. It’s less than you would make normally for working over 40 hours, but next week, when you only work 32 hours, you’ll make more for the week than you used to.

    If you’re an employee who always works 40 hours or more a week, the fluctuating workweek is not for you. Better, by far, to get paid overtime at a rate of 1.5 times your hourly rate. But if you’re someone whose hours fluctuate wildly, with some weeks far less than 40 hours, this system might be really helpful.

    For more answers, I’d suggest visiting this page, by SHRM: https://www.shrm.org/resourcesandtools/legal-and-compliance/employment-law/pages/fluctuating-workweek-method-of-calculating-overtime-pay.aspx

    Best of luck!

  3. Aaron says:

    (Resubmitting with correct email)

    Dear Danielle: The examples you give in your piece are incorrect. The correct overtime payment in your FWW illustration is a total of $13.95 for the three hours of overtime. ($400 salary / 43 hours = $9.30 hourly rate; overtime rate of $4.65/hour ($9.30 * 0.5); total overtime of $13.95 ($4.65 * 3 overtime hours). I was alerted to this b/c a client had an employee come to him citing this page as a source.

    I’m assuming you overlooked this, and I wanted to give you a heads up, since your comments correctly state that overtime hours are paid at 0.5 times hourly rate under the FWW method rather than 1.5 under standard overtime. The idea here is that the straight time hourly pay is included in the FWW salary, regardless of the number of hours worked, so that only the overtime premium (0.5) is being paid. That’s reflected in the SHRM link you posted. The best source is the original DOL regulations: https://www.law.cornell.edu/cfr/text/29/778.114 (“Since the employee has already received straight-time compensation on a salary basis for all hours worked, only additional half-time pay is due.)”

    Yours, Aaron

    • Myranda Mondry says:

      Hi Aaron, thanks for bringing that to our attention! The fluctuating workweek certainly can be tricky! We’ve updated the content and our images to represent the correct numbers.

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