Using the Fluctuating Workweek Compensation Method to Reduce Overtime Expenses in Public Organizations

Published date01 June 2011
Date01 June 2011
Subject MatterArticle
Using the Fluctuating
Compensation Method to
Reduce Overtime
Expenses in Public
By C.W. Von Bergen, PhD
Modifi cations to the Fai r Labor Standar ds Act promulg ated by the Depar tment of
Labor as the FairPay Overti me Initiative in 2004 have prod uced an increas ing
number o f workers subje ct to overtime pa yments and a con comitant incr ease in
labor co sts for public se ctor organiza tions. To adapt to this changing envir onment
and to con trol employee overtime expen ditures organ izations may wi sh to examine
the appl icability of a r elatively obsc ure provision of the Fair Labor S tandards Act
labell ed the fluctuat ing workweek sc heme. This appr oach becomes in creasingly
attrac tive to employe rs as worker over time increase s because a feat ure of this
method i s that the overti me rate due empl oyees under thi s plan decrease s as the
number o f overtime hour s worked increa ses.
The Fair Labor Standards Act1(hereinafter re ferred to as t he FLSA or Act)
requires that most employees in the U.S. be paid at least the federal minimum
wage for all hours worked and receive overtime pay at one and one-h alf times
the regular rate for all ho urs worked over 40 hours in a workweek. The FLSA became
law for the private sector in 1938. The U.S. Department of Labor (DOL), which had
been in existence for less than 10 yea rs at the time, was charged with writin g the rules
that would detail enforcement of the FLSA. It was not until 1985 that the U.S. Supreme
Court ruled th at FLSA applied to local and state gove rnments in the n ow-famous case
of Garcia v. San Antonio Metropolitan Transit Author ity (1985).2
Def‌ined within the Act are certain types of employees who are exempt from both
minimum wage and overtime pay. These exempt categories are cumulatively referred
to as the white collar exemption and the workers are called white collar employees. To
qualify for such exemptions the job description must meet certain salary and job duties
tests. The last major revision to the FLSA occurred some f‌ifty years ago and during this
time these duties tests became outdated resulting in uncertainty and vagueness in their
application. Such ambiguity was exploited by some organizations because exempt
Public Personnel Management Volume 40 No. 2 Summer 2011 165
employees did not have to be paid overtime and could work unlimited hours.
Consequently, organizations began to classify employees as exempt from overtime pay
under the FLSA when, in fact and by law, the employees should have been classif‌ied as
non-exempt.3In response to such organizational action, increasing numbers of
managerial, administrative, and professional employees along with signif‌icant numbers
of previously classif‌ied non-exempt workers began f‌iling high-visibility class-action
lawsuits against employers for unpaid overtime claiming mis-classif‌ication under
the FLSA.
As a result of this increase in lawsuits and these decades-old exemption
descriptions, the Wage and Hour Division of the DOL revised the regulations relating to
white collar exemptions of the Act called the FairPay Overtime Initiative (hereinafter
referred to as FPOI). The purpose of the revised FLSA regulations which went into
effect on August 23, 2004 was to modernize, update, and clarify the criteria for these
exemptions and to eliminate legal problems that the prior regulations caused. More
specif‌ically, the regulations were said to strengthen overtime benef‌its and provide
overtime protection for an additional 6.7 million American employees.4Pragmatically,
this meant that there were more employees subject to overtime payments within
organizations and a concomitant increase in labor costs. This paper discusses the
impact of the FPOI on overtime for public sector organizations and suggests the
f‌luctuating workweek (FWW) scheme as an approach public service employers may
wish to consider to reduce increased overtime costs resulting from the implementation
of the FPOI.
Revised Overtime Regulations Impact Public Sector
The revised regulations pose hardships for state and local gover nments with respect to
labor costs.5Wages and salaries of personnel represent a substantial proportion of costs
in most public employers and cost containment in this human resources area
continues to be a key challenge in the current environment of tight budgets.6
Organizations have tried a number of approaches to lower labor costs including
downsizing, outsourcing and employee leasing, and productivity enhancements. More
recently, organizations have initiated efforts to reduce employee labor expenditures
through better control of overtime.7Overtime pay for current employees is often the
least costly option for employers to exercise in scheduling work assignments and has
been viewed as a key “survival strategy” by many organizations.8This is because it is
often less expensive to schedule longer hours and pay overtime premiums rather than
hire, train, and provide benef‌its for additional employees.9These factors have lowered
the point at which it is more cost effective to schedule longer hours and pay the
overt ime premiu m rather than empl oy additio nal workers .10 Cons equent ly,
organizations expanded the workweek well beyond the normal 40-hour boundary
requiring overtime payments to workers not exempt from the FLSA provisions.
A number of items in the FPOI impact public sector organizations with respect to
overtime considerations.11 First, the changes made to the executive exemption are
likely to have a serious negative impact on public employers because many supervisors
Public Personnel Management Volume 40 No. 2 Summer 2011166

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