DOL: No sick-day deductions for fluctuating workweeks

By Allen Smith Jun 16, 2006

Another mystery involving Fair Labor Standards Act (FLSA) deductions was solved in a Department of Labor (DOL) opinion letter issued May 25.

The puzzled employer in this instance paid salaried nonexempt employees using the fluctuating workweek method. When an employee was absent, the employer would debit hours from the worker’s bank of paid sick leave for the time the worker had missed. Employees could accrue four hours of paid sick leave per month after the first 30 days of employment.

The employer was uncertain whether it might take full-day deductions from the salary of an employee paid on the fluctuating workweek method after the employee exhausted the sick leave bank, or before he or she earned enough sick leave to cover the absence.

Little about the fluctuating workweek method of compensating employees seems elementary to those unfamiliar with it. The salary doesn’t fluctuate under this method, but instead there is a fixed amount as straight-time pay for whatever hours an employee is called on to work in a workweek, whether few or many. For the method to be used, there must be:

    • A clear mutual understanding of the parties that the fixed salary is compensation, apart from overtime premiums, for the hours worked each workweek, regardless of their number.

    • A salary that is sufficiently large to ensure that the employee’s average hourly earnings from the salary will not dip below the minimum hourly wage rate applicable under the FLSA in any workweek.

    • A situation in which the employee is paid overtime at half the regular rate in addition to the salary.

Fluctuating workweek salaries typically are paid to employees who do not customarily work a regular schedule and are in amounts agreed on by the parties as adequate straight-time compensation for long and short weeks, the DOL notes in its FLSA regulations.

While the salary does not vary under this compensation method, the regular hourly rate does vary from week to week. For example, if an employee’s salary is $250 a week and the employee works 40 hours one week but 44 the next and 48 the following, the regular rate would go from $6.25 to $5.68 and then $5.21—all above the federal minimum wage of $5.15 an hour.

In asking whether it might take a full-day deduction for an employee who is out sick one day and does not have enough sick leave to cover the absence, the employer noted that a full-day deduction for a personal absence is permitted for exempt employees under the salary-basis test. An employer is allowed to make full-day deductions from an exempt employee’s pay for full-day absences resulting from sickness if the deduction is made in accordance with a policy, even when an employee has exhausted his or her leave.

However, the opinion letter said that full-day deductions for sick days are not allowed for salaried nonexempt employees under the fluctuating workweek method (FLSA2006-15, dated May 12). Digging back to opinion letters in 1967, 1978, 1983 and 1991, the department concluded that “it is the longstanding position of the Wage and Hour Division that an employer utilizing the fluctuating workweek method of payment may not make deductions from an employee’s salary for absences occasioned by the employee.”

By contrast, a disciplinary deduction from an employee’s salary for willful absences or tardiness would be permitted under the fluctuating workweek method, but only if the deduction does not result in the pay dipping below minimum wage and does not cut into overtime. Frequent disciplinary deductions would raise questions as to the validity of the compensation plan, the opinion letter cautioned.

Other mysteries solved

Other employers have received recent clarifications from the DOL on overtime and other FLSA regulations in separate opinion letters, which concluded that:

    • Employees who provide support services for individuals with developmental disabilities qualified for the companionship services exemption, even though a third-party entity, rather than the individuals with disabilities, employed the workers (FLSA2006-14, dated May 12).

    • A blended rate pay plan agreed to by a union and employer did not comply with the FLSA’s overtime pay provisions (FLSA2006-7NA, dated May 4).

    • Police officers who work special details for a third-party entity servicing a city-owned coliseum qualify for the special detail exemption, even if the city provides workers’ compensation insurance for the officers while the third party employs them (FLSA2006-13, dated April 28).

    • A city would not have to treat time that city firefighters volunteer for the district as compensable hours worked if they perform firefighting in the city while volunteering (FLSA2006-6NA, dated April 28).

    • Bonuses under a team bonus plan that are determined based on a sales lot’s overall performance for the month did not qualify as discretionary bonuses and had to be included in the calculation of the regular rate of pay for overtime purposes (FLSA2006-5NA, dated April 27).

    • An employer could require exempt employees to work either 45 or 50 hours a week, depending on whether they are company officers, and require that exempt employees make up time lost because of personal absences of less than a day when the employer would not dock an employee’s salary regardless of whether workers violated the two rules. Consistent failure to observe the rules would result in discipline up to and including discharge, but violation of the rules would not be a “workplace conduct rule” under the FLSA regulations and so could not result in an unpaid suspension (FLSA2006-6, dated March 10).

Allen Smith, J.D., is senior legal editor for HR News.

Related article:
Overtime Exemptions for White-Collar Employees: New Regulations Clarify Status
, Legal Report, May-June 2004.

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