United States: New York Federal District Court Endorses Use Of Fluctuating Workweek Overtime Payment Method Where Employer Pays Performance-Based Bonuses To Non-Exempt Salaried Employees

Last Updated: January 20 2014
Article by Michael S. Arnold

True story: the other day I was speaking with a friend in the HR realm and I asked him whether he was familiar with the fluctuating workweek. He jokingly answered: "does that have anything to do with my weight gain during the holiday season?" His answer, while (somewhat) amusing, was entirely consistent with others I have quizzed on this topic: they have never heard of this alternative method of overtime pay. Below I will briefly discuss the fluctuating workweek method of overtime pay and a recent challenge in a New York federal district court to its use.

So What is this Fluctuating Workweek You Speak Of?

Time and half. That's how everyone knows it. If your non-exempt employee works more than 40 hours in a single workweek, you have to pay them time and half. It's that simple, right? Well, of course it's not. Otherwise, people like me wouldn't have a job. Little known to employers (like my friend above) is that you can pay your employees just the "half" part of time and half without violating the law – better known as the "Fluctuating Workweek Method" – as long as you satisfy the following five conditions:

  1. The employee's hours fluctuate from week to week. Not sometimes, but regularly – so, for example, in one month he or she could work 42 hours one week, 31 the next, 43 the following week and then 62 in the last week of the month.
  2. You pay that employee the same fixed weekly salary regardless of the number of hours the employee works in any given week (exclusive of any overtime payments due). Thus, you pay a $1,000 weekly wage whether the employee works 42, 31, 43 or 62 hours in the week.
  3. This fixed amount when divided against the number of hours worked in any given week will not result in a regular rate of pay that dips below the minimum wage. Consider this: $1,000 weekly wage ÷ 62 hours worked = $16.13 per hour regular rate of pay. $16.13 > $7.25 minimum wage rate = thumbs up. However, if the weekly salary was let's say just $400, the regular rate of pay when divided against a 62 hour workweek would equal just $6.45, well below the current $7.25 minimum wage rate = thumbs down.
  4. You and the employee have a clear mutual understanding that you are paying him or her a fixed salary regardless of the number of hours the employee works that week.
  5. Lastly, you pay the employee a 50% overtime premium (AKA, the "half") in addition to the fixed weekly salary for each hour worked over 40 hours in a workweek. This is sometimes better known as the "halftime rate." Back to our example of a $1,000 fixed salary and 62 hour workweek: $1,000 ÷ 62 hours = $16.13 regular rate of pay. One half of $16.13 is $8.065 per hour – the halftime rate. The employee worked 22 hours of overtime that week and 22 hours x $8.065 = $177.43 in overtime pay due to that employee on top of the $1,000 fixed salary, for a total weekly salary of $1177.43.

Using the traditional time and half rate overtime payment method in the above example would have cost the employer substantially more. The time and half overtime rate would have been $37.50 per hour (= $1,000 ÷ 40 hours x 1.5) resulting in overtime costs of $825.00 (= 22 OT hours x $37.50) – more than four and half times higher! At first glance, employers salivate over the possibility of utilizing a halftime rate rather than paying time and half. So why not use it all the time then?

First, the above five conditions are hard to satisfy consistently – you may not have a workforce whose hours fluctuate regularly or your pay practices result in the modification of the "fixed" salary (i.e. additional payment for working night shifts). Second, the use of this method, which encourages fewer employees to work longer hours, may affect employee morale negatively and the employer's ability to attract and retain talent. Third, application of this method can cause administrative headaches. But in the right situations, the fluctuating workweek method may be the right solution for you. It keeps overtime costs down where non-exempt employees work more than 40 hours a week regularly and where onboarding costs remain high (i.e. costs related to screening, recruitment and training, providing benefits packages, and securing unemployment insurance and workers ' compensation for additional employees).

So What Just Happened in New York?

In Wills v. RadioShack Corp., RadioShack utilized the fluctuating workweek method to calculate overtime owed to its non-exempt store managers. RadioShack paid its non-exempt store managers a base salary for all hours worked each workweek, plus overtime (at the halftime rate), along with certain non-discretionary quarterly and year-end bonuses that were tied strictly to certain performance metrics and not to the number of hours the employee worked. At issue before a New York federal district court was whether RadioShack satisfied the second condition of the fluctuating workweek test – that its store managers received a fixed weekly salary that did not vary with the number of hours they worked – where it also paid out these bonuses at various times of the year.

The court, in throwing out the case, found that RadioShack correctly utilized the fluctuating workweek method despite its payment of these bonuses because they were strictly performance-based and untethered to the hours they worked. Had it paid the store managers additional "hours-based" bonuses (i.e. bonuses for working holidays, weekends, nights, etc.) it may not have been eligible to use this method because employees working those types of hours cannot be said to have received a "fixed salary" regardless of the number of types of hours they worked. Instead, they would have been paid additional amounts given their work during "premium" hours.

The win for RadioShack was significant because, as shown above, the cost to an employer forced to calculate overtime using a time and half method rather than the half time method can be substantial. This is especially true where an employer like RadioShack is facing a class action lawsuit.

Other courts (including a case involving RadioShack in Ohio) have taken a different view than the Wills court did and we still have not heard from the Second Circuit on this issue. What we can say is that use of the fluctuating workweek method has real advantages for certain employers, but it also carries real risks. We recommend therefore, that you consult with outside counsel before implementing its use in your workplace.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Michael S. Arnold
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions