The "Fluctuating Work-Week" Method of Calculating Overtime Payments Ruled Illegal in Pennsylvania

Many Pennsylvania employers use the “Fluctuating Work-Week”method (“FWW”) to calculate overtime pay for non-exempt salaried employees whose hours fluctuate or are difficult to predict. (Some employers call this the “salaried non-exempt” payment method — a dangerous misnomer to the extent it implies that an employer who pays a non-exempt employees a fixed salary can avoid paying overtime.) Here’s how the FWW method works: each week, the employee’s fixed salary is divided by the number of hours actually worked during the week to determine the employee’s regular rate of pay for that week. The employer then pays the employee one-half times the regular rate for every hour worked over 40, instead of the usual one and one-half times the regular rate. The FWW method benefits both the employee (who gets a predictable minimum salary even if the employee works less than 40 hours) and the employer (who saves administrative complications and because the method allows the employer to lower the regular rate with every additional hour actually worked in any given week).
In the United States, there are federal laws, and there are state laws, and an employer has to worry about complying with both sets of laws. The FWW method was created by the federal government and is valid under federal law, but no court has ever directly addressed its validity under Pennsylvania state law – until now. In a recent case, Foster v. Kraft Foods Global, Inc., a court ruled that payment of overtime using the FWW method violates Pennsylvania law, and that Pennsylvania employers must pay time-and-one-half for hours in excess of 40 hours per week.
(Note: The ruling pertains to employees paid a fixed salary; it does not apply to employees who are typically paid on a per-day or per-job basis).
This may not be the final word. The case was decided by a federal court, not a Pennsylvania state court, and it is possible that a Pennsylvania state court may disagree in the future. But, for now, this is the most definitive ruling we have, and it makes sense based on the wording of the pertinent Pennsylvania statutes. Pennsylvania employers would be well advised to consider this to be the law, at least for now.
Here’s the take-away. Employers using the FWW method should reassess their payroll practices. Employers can still pay a minimum, fixed salary to non-exempt employees, but overtime must be paid at time-and-one-half. There are, of course, complications that may arise from individual circumstances.
Let us know if we can help.
Michael G. Trachtman is MEA’s general counsel and the President of Powell Trachtman Logan Carrle & Lombardo P.C., a 30+ attorney King of Prussia-based law firm that has represented businesses and business people for over twenty years.  He can be contacted at mtrachtman@powelltrachtman.com. See www.powelltrachtman.com for more information.
*This MEA Member Alert is provided for general informational purposes only and does not constitute legal advice.