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

• Published date: 01 June 2011
• DOI: 10.1177/009102601104000206
• Date: 01 June 2011
• Author: C.W. Von Bergen
• Subject Matter: Article

Using the Fluctuating

Workweek

Compensation Method to

Reduce Overtime

Expenses in Public

Organizations

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time these duties tests became outdated resulting in uncertainty and vagueness in their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

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