In March 2011, we wrote about the many practices employers may use in an attempt to reduce costs in these difficult economic times. Unfortunately, some employers take advantage of employees, requiring them to work through breaks or at other times when the employee is “off the clock.” By these practices, the employer is able to avoid paying the employee overtime pay – generally calculated at “time and half” and applicable after 40 hours of work in a week.
Another way employers avoid expensive overtime pay is to structure an employee’s compensation under the “fixed salary for fluctuating hours” method (this method has historically been referred to as “Chinese overtime”). This method of calculation of compensation is permissible under Federal law, but only if certain requirements are met.
Specifically, the requirements for payment of compensation on this basis are:
1. The employee’s number of hours must fluctuate from week to week;
2. The employee’s weekly salary must be paid to him with the understanding that he will be paid the same amount every week as straight time (i.e. non-overtime) pay regardless of the actual number of hours worked;
3. The weekly salary is high enough that even in the weeks the employee works the greatest number of hours, the weekly salary (if divided by the actual number of hours worked) would not fall below the minimum wage; and
4. The full weekly salary must be paid even if the workweek is not one in which the full schedule of hours is worked (i.e. a “short” workweek).
If these conditions are met, the employer may pay overtime at a rate of “half time” rather than time and a half.
For calculation of compensation made by this method to be permissible, it is critical that the employee is given notice and understands that his weekly salary covers whatever hours the job demands, and that the total compensation does not fall below the minimum wage.
If you feel that your employer has miscalculated or “short changed” your compensation through the use of this method, please contact us to discuss your legal rights.