The U.S. Department of Labor (DOL) has announced a significant modification to an existing overtime rule for employees that work fluctuating hours from week to week. As a result, many first responders, including firefighters may find less money in their paychecks in the coming months. The new rule, set to take effect in July, alters the current stringent requirements necessary to pay employees under the highly controversial fluctuating workweek (FWW) method of overtime compensation. In order to understand the potential implications from the new rule, we need to quickly examine the ins-and-outs of the FWW.
The Fluctuating Workweek Method of Overtime Compensation
The FWW method of overtime compensation is a highly controversial and rather burdensome way to pay overtime to employees that work irregular or “fluctuating hours” from week to week. The FWW’s unpopularity—among workers—is linked to the fact that an employee’s regular rate decreases as his or her overtime hours increase. Yes, you read that last sentence correctly. The more hours that an employee works, the less his or her overtime rate…
Under the FWW an employee is paid a salary for all hours worked in a particular week. The employee still receives overtime for hours worked over the statutory maximum (i.e. all hours worked over 40 every week). But, since the employee’s salary is intended to compensate the employee for all hours worked (even the employee’s “overtime” hours), the employee does not receive traditional time and one-half for overtime pay. Instead, the employee receives “half pay,” or one-half of their regular rate for all hours worked over the statutory maximum for that particular week. The employee’s regular rate is calculated anew every workweek. This is accomplished by dividing the employee’s salary by the total number of hours worked in the workweek.
Here is an example of how it works:
- Employee A is paid a salary of $800 per week. A works 44 hours one week. A receives $800 plus 4 hours of overtime. A’s regular rate is calculated by dividing his weekly salary ($800) by the hours worked in the week (44). In this example, A’s regular rate is $18.18 per hour for that particular week. Under the FWW, A is entitled to one-half of his regular rate for the 4 hours of overtime worked. In this example, A would be paid an additional $36.36 for working an additional 4 hours.
- The next week, A works 56 hours. A still receives the same $800 salary. The regular rate for this workweek is computed the same as above, only instead of dividing A’s $800 salary by 44 hours, the employer divides the $800 salary by 56 hours. The regular rate for this workweek is reduced to $14.29 per hour. In this second week, A will receive his $800 salary plus 16 hours of overtime pay. But because of the high number of hours worked in the week, he will only see an extra $114.29 in his paycheck.
For those keeping track, we can quickly see that this type of pay plan could be financially devastating for employees that work significant amounts of overtime from week to week.
Strict Requirements Under Fluctuating Workweek
While on its face, the FWW may seem like a dream come true for budget-conscious employers, in reality, the FWW is rather uncommon in today’s workplace. There are several reasons for this. First and foremost, around a half dozen states, have either completely banned the FWW or have placed significant limitations on its usage.
Second, the DOL (up until this new revision) placed rather strict requirements on the FWW. In order for an employer to utilize the FWW the following requirements were necessary:
- An employee’s work hours fluctuate from week to week, and
- The employer and employee must reach a “clear and mutual understanding” that a fixed salary is intended to compensate the employee for all hours worked in a week “whether few or many”.
Historically, courts and the DOL took a very narrow view of the FWW’s “fixed salary” requirement. For example, if an employer paid an employee additional money as a reward for length of service, specific qualifications, or even working or not working on a holiday, the employer could not utilize the FWW. Under the new rule, the DOL is allowing employers to provide employees additional compensation in addition to their fixed salary and still utilize the FWW method of overtime compensation.
Can Firefighters Be Paid Under the FWW
As a general rule, firefighters can be paid under the FWW method of overtime compensation provided they meet DOL requirements. One significant difference between a firefighter and a non-firefighter relates to the maximum hours requirement. In other words, under the FWW a firefighter will not necessarily receive overtime after working only 40 hours in a week. Most firefighters will only receive overtime after they have worked 53 hours in a week, or 212 hours in 28 days, or some ratio thereof, depending upon the work period adopted by the fire department.
Traditionally, the biggest hurdle related to paying firefighters and other first responders under the FWW related to the DOL’s requirement of a “fixed salary.” Many firefighters receive additional compensation for longevity, qualifications or certifications, working hazardous duty, and for working or not working holidays. Historically, this additional compensation prevented fire departments from paying firefighters under the FWW. In 2015, a Federal Court in South Carolina found paying firefighters incentive pay, holiday pay, and standby premiums above and beyond weekly salaries was “incompatible” with the FWW’s fixed salary requirement.
However, with the DOL’s new stance on the FWW, that will no longer be the case. Additional compensation in addition to a salary is no longer “incompatible” with the FWW.
What is Next?
The new FWW rule will most likely not impact firefighters and other first responders working in a small handful of states that have outlawed or significantly curtailed the ability for employers to utilize the FWW. Also, firefighters and first responders in states that allow for public sector collective bargaining may not be impacted (at least not immediately) from the new rule. However, for those that work in the many states that do not allow public sector collective bargaining, or for firefighters, EMTs, and other first responders that rely solely on the FLSA for their overtime, there could be a significant decrease in take-home pay as a result of the new rule. In these jurisdictions, the change could be made with little notice and could have significant impact on firefighter overtime costs.
Up until recently the FWW represented a rather small component of our three-day FLSA for Fire Department seminars. Now that we have moved to an EZ-schedule (designed to accommodate different time zones) webinar format, we are re-tooling some of the portions of the program to better accommodate the new format. Given these new developments, the FWW will likely take a more prominent role moving forward. Please consider joining us.
Click here for more on the new rule from Bloomberg Law.
Here is a copy of the final FWW rule.