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Court Finds “Fluctuating Workweek” Method of Calculating Overtime Not Allow in Pennsylvania

In Verderame v. RadioShack Corp., Civil Action No. 2:13-2539 (E.D. Pa. July 10, 2014), the United States District Court for the Eastern District of Pennsylvania held that employers in Pennsylvania may not use the “fluctuating workweek” method of calculating overtime under the Pennsylvania Minimum Wage Act (“PMWA”).

The fluctuating workweek method of calculating overtime, which is allowed under the Fair Labor Standards Act (“FLSA”), arises if a non-exempt employee has hours of work that fluctuate from week to week, and the employer and employee have an understanding that the employee will receive a fixed salary, paid as straight time for all hours worked. The amount paid as salary must be enough so that the employee receives at least minimum wage for all hours worked. If these criteria are met, then overtime for hours worked over 40 in a workweek may be paid at a rate of ½ the employee’s regular rate of pay, rather than at 1-1/2 times the regular rate of pay. The theory is that the employee already has been paid for the time with the employee’s straight-time salary.

The PMWA is the state equivalent of the FLSA; however, it does not track the FLSA exactly. Where a state has an FLSA-equivalent law, whichever law is more favorable to the employee must be followed. Like the FLSA, the PMWA requires that non-exempt employees be paid overtime for hours worked over 40 in a week. It does not, however, have any provisions specifically authorizing the use of the fluctuating workweek method of overtime compensation. In Verderame, the company had argued that the fluctuating workweek method was permitted under a PMWA regulation, but the court held that this regulation did not permit the use of the fluctuating workweek method for payment of overtime.

What Does This Mean For You? While the Pennsylvania Supreme Court has not yet addressed this issue, employers should examine the way they pay non-exempt salaried employees. Employers utilizing the fluctuating workweek method of calculating overtime should strongly consider changing to another method of pay that will result in the employee’s receiving 1-1/2 times their regular rate of pay, or if agreed between the parties, their basic rate of pay for work over 40 hours in a week.

Employers also should keep in mind that there are other areas where the PMWA is more favorable for employees than the FLSA. For example, while the FLSA contains exemptions from overtime provisions specific to computer professionals and highly-compensated individuals, the PMWA does not. Accordingly, employees who fit within those exemptions under federal law must also fit within an exemption recognized in Pennsylvania in order to be exempt in Pennsylvania. Employers need to be cognizant of these differences when making decisions regarding pay and overtime.

If you have any questions on this or any other employment or labor law matter, please contact S. Whitney Rahman at swr@blakingerthomas.com

This update is provided for informational purposes only and should not be
construed as legal advice or as creating an attorney-client relationship
where one does not already exist.