New Fluctuating Workweek Rule Can Help With Social Distancing, Says DOL

Author: Michael Cardman, XpertHR Legal Editor

May 22, 2020

As workplaces begin to reopen, employers will soon have additional flexibility involving two key ingredients in the return to work: hazard pay and social distancing.

The US Department of Labor has issued a final rule clarifying that additional pay of any kind, including bonuses and hazard pay, is compatible with the fluctuating workweek method of calculating overtime.

The DOL said it believes the new rule will help employers implement flexible work schedules as workers return to work following the coronavirus (COVID-19) pandemic:

Some employers are likely to promote social distancing in the workplace by having their employees adopt variable work schedules, possibly staggering their start and end times for the day. This rule will make it easier for employers and employees to agree to unique scheduling arrangements while allowing employees to retain access to the bonuses and premiums they would otherwise earn.

The DOL estimated that more than 720,000 workers could be affected by the new rule.

The new rule will take effect 60 days after it is published in the Federal Register.

Background

Under the fluctuating workweek method, an employer may pay an employee a fixed amount per week as straight time, regardless of the number of hours worked, if the employee's hours fluctuate from week to week and other important criteria are met. Payment for overtime hours is just one-half times the regular rate, instead of one and one-half times the rate, because the straight-time rate is understood to compensate employees for all the hours they actually worked.

For several decades after the fluctuating workweek method was first introduced in 1940, the DOL neither explicitly permitted nor prohibited employers from paying bonuses and premiums beyond the minimum salary to fluctuating workweek employees.

Then in 2008, under the Bush administration, the DOL attempted to "eliminate confusion" by proposing new regulations that would affirmatively allow employers to pay premiums and other bonuses without invalidating the "fluctuating workweek" method.

But in 2011, when the Obama administration finalized the 2008 proposal, the DOL abandoned the idea. In the preamble to its final rule, it said that allowing employers to pay bonuses and other premium payments while using the fluctuating workweek method "could have had the unintended effect of permitting employers to pay a greatly reduced fixed salary and shift a large portion of employees' compensation into bonus and premium payments, potentially resulting in wide disparities in employees' weekly pay depending on the particular hours worked."

Although the DOL's stance articulated in the preamble that bonus and premium payments "are incompatible with the fluctuating workweek method of computing overtime" was never actually enshrined in the final regulation, the DOL said it "appears to have generated further confusion among courts," thereby necessitating clarification.

Mixed Reactions

The rule generated mixed reviews from stakeholders after it was first proposed last November.

For example, the National Employment Lawyers Association (NELA) said it will harm employees by encouraging employers to pay diminishing half-time overtime with a minimal guaranteed salary. The changes are unnecessary, it said, because courts already are handling the issue of supplemental pay.

A group of 18 state attorneys general argued that the rule will "create unnecessary confusion for employers, potentially leading them to violate state laws and needlessly exposing them to costly enforcement actions." They noted that several states either do not allow the fluctuating workweek method (including Alaska, California, Connecticut (for certain retail employees and others), New Mexico and Pennsylvania) or allow it only within the narrow bounds of fluctuating workweek as it existed at a certain point in time (such as Arkansas, which refers to the federal regulations in effect in 2005).

The Society for Human Resource Management (SHRM), on the other hand, supported the DOL's rule, saying it will benefit employers and employees alike.