In yet another example of White House politics driving the employment ship, the U.S. Department of Labor (DOL) recently rescinded regulations that had been proposed to clarify the fluctuating hours method of calculating overtime. This method, also known as fixed-pay-for-fluctuating-hours, is a lawful method under the Fair Labor Standards Act of paying non-exempt employees whose hours fluctuate from week-to-week a fixed salary that is meant to be the employee's straight-time wages for all their working time. When the employee works overtime (i.e. more than 40 hours in a week), the overtime premium is calculated at half-time rates rather than the traditional time-and-a-half. The regulations proposed under the Bush Administration were intended to clarify that additional forms of compensation, such as production bonuses, commissions, on-call pay, or shift premiums, were permissible under the fluctuating hours method as long as they were included in the employee's regular rate for purposes of overtime calculations.
Desiring to make the fluctuating hours payment method less attractive for employers, the current administration rescinded the proposed language regarding bonuses and other forms of additional compensation. The DOL explained its decision by stating that providing an employee with additional forms of compensation was inconsistent with paying the employee a "fixed salary." The DOL went on to state that, except for overtime premiums, providing any other forms of additional compensation would invalidate the fluctuating hours payment method. Presumably in that case the DOL would take the position that the employee would be entitled to overtime calculated at the full time-and-a-half.
Although not addressed by the DOL's comments, the FLSA expressly excludes certain additional forms of compensation from the overtime calculation formula. These may provide some flexibility for employers who wish to utilize the fluctuating hours payment method; however, given the uncertainty in this area and the specific requirements that must be satisfied to fit within these exclusions, it would be best to consult with your wage and hour counsel if you are considering any of these as an option.