Screen clip from Notice of Proposed Rulemaking
U.S. DOL Issues Notice of Proposed Rulemaking

On November 5, 2019, the U.S. Department of Labor published a proposed rule that would make it easier for some employers to apply the “Fluctuating Workweek” method of calculating overtime pay for certain non-exempt employees.


For those not familiar with the concept, the fluctuating workweek method is one way of calculating overtime pay for non-exempt employees who are paid a fixed salary but whose hours fluctuate from week to week. The fluctuating workweek method can be extremely advantageous for employers because it allows an employer to pay a non-exempt employee a fixed salary covering all of the employee’s straight-time work, regardless of the number of hours worked. If an employee works overtime, they still receive premium pay for each hour worked, but the rate is one-half of the employee’s regular rate instead of 1.5 times the regular rate. For a full explanation of this method and the conditions under which it can be used, check out our earlier explanation here.

Under the current rules, several conditions must be met before an employer can use the fluctuating workweek method. These include:

  1. The employee’s work hours fluctuate from week to week.
  2. The employee receives a guaranteed salary each workweek, regardless of hours worked.
  3. The employee’s salary is sufficient to compensate the employee at not less than the applicable minimum wage for all hours worked.
  4. There is a clear mutual understanding between the employer and employee that the employee’s fixed salary covers the employee’s straight-time wages for all hours worked.
  5. The employee receives overtime compensation, in addition to the fixed salary, for all overtime hours worked at a rate of not less than 1/2 of the employee’s regular rate of pay, calculated by dividing the employee’s non-overtime compensation for each workweek by the actual hours worked in each workweek.

Proposed Changes

The DOL’s new proposed rule focus on the second requirement – the fixed salary. Back in 2008, the DOL under the George W. Bush administration issued proposed regulations that would have allowed employers who use the fluctuating workweek method to supplement employees’ salaries with additional non-overtime payments such as incentive pay and bonuses. However, those regulations were not finalized until 2011, after President Obama took office. The final rule published by the Obama administration did not include the proposed changes to fluctuating workweek regulations allowing for incentive compensation and bonus pay. In its commentary on the final rules, the DOL took the position that any additional compensation paid to an employee, be it a shift premium, production bonus, or anything other than overtime pay – would be incompatible with the “fixed salary” requirement for the fluctuating workweek method, and would create a risk of abuse by employers seeking to reduce their overtime liability.

Now, under the Trump administration, the DOL is proposing to reverse course again, with a rule that would expressly permit employers to use the fluctuating workweek method for employees who also receive additional bonuses and incentive compensation, so long as the additional pay is properly factored into the employee’s regular rate of pay for purposes of calculating overtime.

Here’s how this would work, according to examples in the proposed rule:

Suppose an employee’s work hours vary from week to week, but never exceed 50 hours. The employee is paid a flat salary of $600 per week, with the understanding that it constitutes the employee’s entire compensation aside from overtime premiums and any bonuses, premium payments, or additional pay not excludable from the regular rate under FLSA Sections 7(e)(1) through (8), regardless of the employee’s hours worked.

During the course of four weeks, the employee’s hours and pay are as follows:

Salary Hours Regular Rate (Salary ÷ Hours) OT Hours OT Pay (OT Hours x 1/2 Regular Rate) Total Pay
$600 37.5 $16.00 0 $0.00 $600.00
$600 44 $13.64 4 $27.28 $627.28
$600 50 $12.00 10 $60.00 $660.00
$600 48 $12.50 8 $50.00 $650.00

For the same employee, if four of the employee’s hours in each workweek were night shift hours compensated at a premium rate of an extra $5 per hour (totaling $20 per week), the employee’s pay would be calculated as follows:

Total Straight-Time Earnings

(Salary plus shift premium)

Hours Regular Rate (Salary ÷ Hours) OT Hours OT Pay (OT Hours x 1/2 Regular Rate) Total Pay
$620 37.5 $16.53 0 0 $620.00
$620 44 $14.09 4 $28.20 $648.20
$620 50 $12.40 10 $62.00 $682.00
$620 48 $12.92 8 $51.68 $671.68

The same principal would apply if, instead of a shift bonus, the employee received a productivity bonus of $100 each week:

Total Straight-Time Earnings

(Salary plus bonus)

Hours Regular Rate (Salary ÷ Hours) OT Hours OT Pay (OT Hours x 1/2 Regular Rate) Total Pay
$700 37.5 $18.67 0 0 $620.00
$700 44 $15.91 4 $31.84 $731.84
$700 50 $14.00 10 $70 $770.00
$700 48 $14.58 8 $58.32 $758.32

What Happens Now

The DOL is accepting public comments on the proposed rule through December 5, 2019. Interested parties can submit comments online through the Federal eRulemaking Portal at, or by mail to: Division of Regulations, Legislation, and Interpretation, Wage and Hour Division (WHD), U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, Washington, DC 20210.

Responding to the concerns raised in 2011 by the prior administration, the DOL states in its commentary regarding the proposal that it “is not aware of any evidence of problematic pay shifting,” and cites data from the Bureau of Labor Statistics showing that bonuses and additional pay other than fixed salary amount to a “relatively small portion of employees’ overall compensation – no more than 5% for any occupation.” These assurances are unlikely to mollify critics, and the new rule can be expected to draw substantial criticism from worker advocates. Despite such criticism, it seems likely that the DOL will seek to issue a final rule in the next year, possibly before the November 2020 election.

While the rule, if adopted, would provide clarity regarding the use of the fluctuating workweek method with bonuses and incentive compensation at the federal level, it is not clear whether states and localities with their own overtime pay requirements will follow the federal lead. In Illinois for example, the regulations implementing the Illinois Minimum Wage Law recognize the fluctuating workweek method, but are silent on whether the method may be used with bonuses or incentive compensation. While state courts might defer to the federal rule in interpreting the state law, that is by no means guaranteed. Accordingly, even if the proposed rule is adopted in its current form, employers should consult with experienced employment counsel before implementing any changes.