In an opinion letter issued on August 31, 2020, the U.S. Department of Labor restated its position that an employee’s hours need not fluctuate above and below 40 hours to qualify for the fluctuating workweek (“FWW”) method of calculating overtime pay in 29 C.F.R. § 778.114.

Under the FWW method of pay, an overtime-eligible employee whose hours fluctuate from week to week and who agrees to receive a fixed weekly salary covering all hours of work is entitled to a halftime premium for hours worked in excess of 40 per week—not a time-and-a-half premium.  The rationale is that the employee, by virtue of the fixed salary covering all hours of work, has already been paid the “straight-time” component of pay for the hours over 40.  Accordingly, all that remains for the employer to pay is the “half” in the colloquial “time and a half.”  The FWW principles were first articulated by the Supreme Court in Overnight Motor Transportation Co. v. Missel, 316 U.S. 572 (1942).  In 1950, the DOL codified the rule in the federal regulations.  The rule requires hours that fluctuate from week to week; a fixed salary that does not vary with the number of hours worked; a salary sufficiently large to cover the minimum wage; and a clear mutual understanding between employer and employee that the employer will pay the fixed salary regardless of the number of hours worked.  If these requirements are met, the employer computes the regular rate by dividing the weekly salary by the total number of hours worked that week, and satisfies its overtime pay obligation by paying a premium equal to half that amount for each overtime hour worked.  In the many states where it is permitted, the FWW method is a powerful tool for employers seeking to manage overtime costs for salaried non-exempt employees.

The DOL has long held that the FWW method does not require that an employee’s hours of work fluctuate below 40 hours per week.  It confirmed as much in the June 2020 final rule amending § 778.114, as well as in prior opinion letters.  This most recent opinion from the agency makes clear that the FWW method is appropriate even when the employee always works more than 40 hours per week.  A number of federal courts of appeal have agreed, including (in June 2020) the Second Circuit in Thomas v. Bed Bath & Beyond, Inc.  

Under the Fair Labor Standards Act, employers can rely on DOL opinion letters as defenses to claims for overtime pay.  Specifically, “no employer shall be subject to any liability … on account of the failure … to pay … overtime compensation … if [it] pleads and proves that the act or omission complained of was in good faith in conformity with and in reliance on any written … ruling, approval, or interpretation …  of the [Administrator of the Wage and Hour Division of the Department of Labor]….  Such a defense, if established, shall be a bar to the action or proceeding].”  See 29 U.S.C. § 259(a).  The August 31 opinion letter is an official ruling or interpretation for purposes of this good-faith reliance defense.

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