HR INSIGHTS
COURT INVALIDATES FIXED SALARY/ FLUCTUATING WORKWEEK PAY SYSTEM
T
Richard I. Lehr, Lehr Middlebrooks Vreeland & Thompson, P.C.
he fixed salary for a fluctuating workweek pay system (FWW) is widely used in the
lawn and landscape industry. Under this pay system, if an employee
receives a recurring weekly salary regardless of the number of hours worked up to 40, then overtime is paid at a “half time” level rather than time and a half. For example, assume that an employee receives a weekly salary of $600 and works 50 hours. The average hourly rate for all hours worked, 1 through 50, is $12.50 per hour. The amount of overtime owed is one half of that rate ($6.25) times the number of overtime hours (10), for a total of $62.50 of overtime. If the employer applies this pay system improperly, then the amount of overtime owed is based upon dividing $600 by 40 hours ($15/hour) and paying time and a half of that ($22.50) times 10 hours, for $225 hours of overtime owed. So, an employer that inappropriately applies the FWW system runs into a considerable financial risk. This is exactly what occurred in the recent case of Dacar v. Saybolt. Saybolt employed inspectors of oil field rigs and operations. A group of inspectors was paid according to the FWW pay system. In addition to a weekly salary, they were paid incentives based upon working certain hours, such as overtime hours, days when they were scheduled for time off and holidays. Saybolt included those incentives in the overall overtime calculations, which meant that it paid “half time” for those incentives. Inspectors argued that incentives based upon hours worked were improper under the FWW pay system, and, therefore, their total compen- sation for the week, including incentives, should be divided by 40 hours and they should be paid time and one half of the regular hourly rate. As noted with the above example between $62.50 and $225, the difference in what an employee may be owed is considerable.
The court agreed with the inspectors that the employer improperly applied the FWW pay method. The court noted that an incentive related to performance, such as commissions, sales or achieving other bonus targets, is ap- propriate under the FWW pay system. However, time-based bonuses, unlike performance-based commissions, run afoul of the FWW regulations, because they make weekly pay dependent on the type of hours worked. Saybolt’s incentives were time-based bonuses, because they depend- ed on the kind of hours worked—day off hours, off-shore hours or holiday hours. In order for the FWW pay system to be valid, the following must occur:
1. The employee’s hours must fluctuate from week to week due to circumstances beyond the employee’s or employer’s control, such as the weather.
2. The employee’s salary on a weekly basis must not vary based upon the number of hours worked.
3. The salary divided by hours worked must equal at least the minimum wage.
4. The employer and employee must have a written understanding regarding the FWW pay system and how it will work.
5. This pay system must be valid according to state laws (note that some states prohibit it).
You can include incentive or performance-based bonuses as part of the FWW pay system but have it reviewed by counsel before the start of the next season to be sure that you are in compliance. Also, note that there is a variation to this pay system that may be used, which is a daily pay rate. Under this pay system, the general principles and rules of FWW apply, except that the employee is paid a fixed amount per day, regardless of the number of hours worked during that day.
Phone consultations with LMVT are a member benefit and are included in the cost of NALP membership. Call the main office at 205-326-3002 and ask for Richard Lehr.
32 THE LANDSCAPE PROFESSIONAL > JANUARY/FEBRUARY 2019
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