Pennsylvania Outlaws “Half-Time Overtime” Fluctuating Workweek Pay
On November 20, 2019, the Pennsylvania Supreme Court outlawed the payment of “half-time overtime” pursuant to the fluctuating workweek method of compensation (“FWW Method”). The Court affirmed that this violates the Pennsylvania Minimum Wage Act (“PMWA”) and corresponding regulations. The case, Chevalier v. General Nutrition Centers, Inc.,[i] was a wage and hour class action in which the employer appealed a $1.7 million back pay award in favor of the employees for unpaid overtime.
The FWW Method can be used under the federal Fair Labor Standards Act (“FLSA”) and in many states where an employee who is entitled to overtime pay (a “nonexempt employee”) works an irregular number of hours on a weekly basis. Under the FWW Method employers elect to pay such nonexempt employees a flat weekly salary (even if the employee’s hours exceed or fall below 40 in a workweek), plus “half-time” overtime pay for all hours worked in excess of 40 hours in a workweek. As a result, the employee’s overtime rate will vary depending on the number of hours actually worked in a given workweek, which will determine the employee’s “regular rate” and the resulting overtime rate.
For example, if a nonexempt employee paid a flat weekly salary of $750 works 50 hours one week, their “regular rate” would be $15 per hour[ii] and their “half-time” overtime rate would be $7.50 per hour.[iii] Accordingly, the employee would be owed an extra $75 in overtime pay that week.[iv] By contrast, if that same employee worked 60 hours another week, their “regular rate” would be $12.50[v] per hour, their “half-time” overtime rate would be $6.25 per hour,[vi] and they would be owed $125 in overtime pay.[vii] Based on these two (2) examples, it is easy to see why the FWW Method appeals to employers: when FWW Method employees work longer, their effective hourly rate becomes lower.
While FWW “half-time overtime” is now unlawful in Pennsylvania, Pennsylvania employers can still use the FWW Method for salaried, nonexempt employees if they pay the standard “time and one-half” rate for all overtime hours worked in a given week. The rest of the FWW Method calculation is unaffected, and the overtime rate will still depend on the number of hours the employee actually works. This means that if Pennsylvania employers use the FWW method, their employees must be paid three (3) times more overtime than required under federal law – time and a half versus half-time.[viii]
Stay tuned for further updates as employee rights and employer obligations under federal, state, and local wage and hour laws continue to change. In the meantime, if you have any questions about how this, or any other, labor and employment law development may affect your business, please contact Brad M. Kushner at firstname.lastname@example.org, Alexander V. Batoff at email@example.com, or the Stevens & Lee attorney with whom you regularly work.
[ii] $750 weekly salary ÷ 50 hours worked = $15 per hour regular rate.
[iii] $15 per hour regular rate × 0.50 = $7.50 per hour “half-time” overtime rate.
[iv] $7.50 per hour overtime rate × 10 overtime hours = $75 overtime pay.
[v] $750 weekly salary ÷ 60 hours worked = $12.50 per hour regular rate.
[vi] $12.50 per hour regular rate × 0.50 = $6.25 per hour “half-time” overtime rate.
[vii] $6.25 per hour overtime rate × 20 overtime hours = $125 overtime pay.
[viii] Sticking with the first example, the nonexempt employee with the $750 flat weekly salary would be owed $22.50 per hour if they worked 50 hours in a given workweek, for a total of $225 in overtime pay:
$750 weekly salary ÷ 50 hours worked = $15 per hour regular rate;
$15 per hour regular rate × 1.5 = $22.50 per hour “time and one-half” overtime rate;
$22.50 per hour overtime rate × 10 overtime hours = $225 overtime pay, as compared to $75 under the FWW Method.
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