Understanding The Fluctuating Workweek Method & Overtime Calculation

Supriya Saxena

Supriya Saxena

Senior editor

Parul Saxena

Chief editor

Last updated: February 23, 2021

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Employee productivity is what makes the difference between successful organizations and ones that are not performing well! 

A recent survey revealed that, shockingly, 85%  of employees are actively disengaged at the workplace. Can you imagine the revenue lost due to this lack of productivity?

So, what can you do as a business owner to streamline work processes and ensure your workforce stays happy?

Implementing good payroll and HR software should rank high on your priority list. It is an all-inclusive solution that helps you understand the latest industry payment trends and ensure accurate wages are paid on time.

With an increase in remote working, many organizations have moved towards flexible working hours and offer employees fluctuating workweeks. Payroll tax calculators can help you understand the fluctuating workweek and calculate overtime payments for your employees.

If we have caught your attention, read on to know more about computing over time using the fluctuating workweek method!

Over the years, many employers have been hesitant to implement flexible working hours. This is because they feel it will be extremely challenging to track employee working hours and calculate accurate payments.

However, it is essential for businesses to adapt to the ‘new normal.’ Organizations need to implement new work arrangements such as fluctuating workweeks and gain knowledge on overtime compensation under this method. 

Looking for Payroll Software? Check out SoftwareSuggest’s list of the best payroll management software solutions.

What Is A Fluctuating Workweek?

Traditionally, we assume that a job has fixed working hours. So, you may start a new job and expect to go through the regular 9-5 grind. However, some employees work different hours every week. As a result, their weekly hours clocked in may vary week to week.

This is known as a fluctuating workweek schedule.

Fluctuating workweeks bring about tremendous flexibility in daily work operations. They also come with challenges in terms of salary and overtime calculations. Most organizations use automated time and attendance systems to calculate working hours for employees on a fluctuating workweek schedule. They ensure mandatory compliance and help in providing clarity around payment, incentives, bonuses, and overtime.

Can You Use The Fluctuating Workweek Method?

If you are not familiar with the fluctuating workweek method and are worried about implementing it smoothly, fear not! All you need to do is update yourself with the Fair Labor and Standards Act’s (FLSA’s) regulations on salary and overtime payment for workers with varying work schedules.

In May 2020, the Department of Labor released updated guidelines that mention the criterion to use the fluctuating workweek method. Here are the five prime requisites:

  1. Employees’ weekly work hours fluctuate; however, there is no specific range. Hence, the work hours can fluctuate above or below 40 hours per week, based on the job’s nature.
  2. The employee earns a fixed salary amount, irrespective of the number of hours worked per week.
  3. The employee’s per hour wage is higher than the legal minimum wage specified by federal or state laws.
  4. There is an ‘undisputed and mutual’ understanding between the employee and the employer.
  5. Employers pay the employee the required fluctuating workweek overtime rate of 0.5 per hour of overtime worked.

How To Implement The Fluctuating Workweek Method

You need to step out of the rut and start implementing new work arrangements that can improve employee engagement and bottom-line results! 

Investing in a comprehensive payroll solution with an overtime pay-rate calculator will be a great decision that can help you overcome the inertia and implement fluctuating workweeks for your workforce. Here are some aspects to keep in mind:

1. Verify That Your Employee Is Eligible

The first thing that organizations need to do before transitioning to fluctuating workweeks is to check if their employees fit the bill. Based on the criterion, the employee can work for fluctuating hours, however, they must be employed on a fixed salary amount. This will not change irrespective of the hours worked per week.

2. Check The State Laws

Make sure to check your local and federal laws to know the existing policy on fluctuating workweeks. On May 20th, 2020, the Department of Labor allowed organizations to use the fluctuating workweek method for salaried employees eligible for incentives and bonuses. 

3. Create A Fluctuating Workweek Agreement

Consult a small business lawyer to draw a valid mutual agreement clearly stating the terms of fluctuating workweek arrangement. Make sure that your employees consent to the terms and conditions before starting the process of a legal contract.

4. Calculate Overtime Hours

The next most essential part is to calculate overtime hours effectively to ensure that your employees receive accurate and fair compensation. Fluctuating workweek overtime calculation can be made easy by investing in a functional payroll system that automates timekeeping and attendance.

Understanding Fluctuating Workweek Overtime Calculation

While many employers may fear fluctuating workweek overtime calculations, the truth is that it is a straightforward and basic process. The first step in the overtime calculation is to compute the worker’s hourly rate.

You can accurately measure an employee’s hourly working rate by dividing the entire week’s salary by the total number of hours worked in the week.

Hourly Rate = Week’s Salary / Total Number of Hours Worked

Once you calculate the hourly rate, you need to multiply it by 0.5 for each extra hour worked over 40 hours. Simply put, this means that your employees get overtime at one and a half times the normal hourly rate. This keeps them happy and motivated at the workplace!

Finally, you need to add the fluctuating workweek overtime amount to the weekly salary to calculate the total earnings. Payroll and HR software can help your organization automate tedious calculations and automate the process.

The Final Word

Before giving the green signal to your HR department to go ahead and implement the fluctuating workweek, make sure that it works for your organization.

Also Read: Structuring the HR Department: A Detailed Guide

Remain on the right side of the law by ensuring that fluctuating workweeks are permissible under state, federal, and local legislation. Seek legal counsel to put up a rock-solid agreement on the table so that employees understand the terms and conditions of the new system. 

An attractive and flexible job arrangement, fluctuating workweeks can prove to be a win-win situation for both employer and employees!

Supriya Saxena
A logophile by heart, Supriya loves to research and write about the latest technology and trends. She believes that writing is the best medium to influence people in a positive way and has 3+ years of writing experience.

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