Fluctuating Workweek Method of Calculating Overtime Pay Allowed for Workers Who Receive Performance Bonuses: SDNY | Practical Law

Fluctuating Workweek Method of Calculating Overtime Pay Allowed for Workers Who Receive Performance Bonuses: SDNY | Practical Law

In Wills v. RadioShack Corp., the US District Court for the Southern District of New York held that employers are not precluded by the FLSA or the New York Labor Law from using the Fluctuating Workweek (FWW or "half-time") method to calculate overtime pay for workers who receive performance-based bonuses.

Fluctuating Workweek Method of Calculating Overtime Pay Allowed for Workers Who Receive Performance Bonuses: SDNY

by Practical Law Labor & Employment
Published on 14 Nov 2013 • New York
In Wills v. RadioShack Corp., the US District Court for the Southern District of New York held that employers are not precluded by the FLSA or the New York Labor Law from using the Fluctuating Workweek (FWW or "half-time") method to calculate overtime pay for workers who receive performance-based bonuses.
On November 7, 2013 in Wills v. RadioShack Corp., the US District Court for the Southern District of New York issued an opinion holding that use of the Fluctuating Workweek Method (FWW or "half-time" method) to calculate overtime pay for salaried non-exempt workers who receive performance-based bonuses does not violate either the FLSA or the New York Labor Law (NYLL), Sections 191, et seq.
Under the FWW method, workers are paid an overtime premium of one-half their regular hourly rate instead of the more generous one-and-one-half times the regular hourly rate. In Wills, the plaintiff argued that performance-based bonuses were inconsistent with the FWW method, and that RadioShack violated the NYLL when it used the FWW method to calculate overtime pay for salaried non-exempt managers who received such bonuses. The court rejected that argument and granted RadioShack's motion to dismiss the putative class action. The court relied on the FLSA in its analysis, explaining that:
  • The NYLL tracks the FLSA's permissible overtime pay practices.
  • The FWW method is governed by the same legal standards under the FLSA and the NYLL.
The FLSA's implementing regulation, Section 778.114 (29 C.F.R. § 778.114), imposes five conditions on an employer's use of the FWW method:
  • The employee's hours must fluctuate from week to week.
  • The employee must receive a fixed weekly salary.
  • The fixed weekly salary must be equivalent to a regular hourly rate of no less than the minimum wage.
  • The employer and the employee must have a clear mutual understanding that the weekly salary is fixed regardless of the number of hours worked in a week.
  • In addition to the fixed weekly salary, the employee must receive half-time overtime pay for all hours worked over 40 in a week.
At issue in Wills was the fixed weekly salary requirement. The court focused on the DOL's May 5, 2011 Final Rule, in which the DOL noted that the payment of bonuses is incompatible with the FWW method. The court concluded that the DOL's explanatory language applied to hours-based, but not performance-based, bonuses because:
  • Prior to the Final Rule, hours-based, but not performance-based, bonuses had been widely held inconsistent with the Section 778.114 requirement that employees be paid a fixed weekly salary regardless of the number of hours worked.
  • The Final Rule did not implement the DOL's proposed revision to Section 778.114 which would have expressly permitted the FWW method where hours-based bonuses were paid.
  • The DOL explained that it abandoned the proposed revision because an employee's fixed weekly salary could not depend on hours worked.
  • The Final Rule did not include any direct or indirect reference to performance-based bonuses.
The court concluded that because hours-based, but not performance-based, bonuses affected an employee's fixed weekly salary, the DOL intended to preclude the FWW method only where hours-based bonuses are involved. The court held that because the Final Rule did not interpret or change the substance of Section 778.114 as applied to performance-based bonuses, such bonuses were consistent with the FWW method. Therefore, RadioShack's use of the FWW method to calculate overtime pay for salaried non-exempt workers who received performance-based bonuses did not violate the FLSA or the NYLL.
Court documents: