Salary Plus Half Time for Overtime (aka Fluctuating Workweek or Chinese Overtime) is Not Allowed in 7 States
Alaska, California, New Mexico, Pennsylvania, Connecticut, Montana, and New Jersey. Rulings in these states have rejected employer’s arguments that employee’s overtime pay should be limited to a mere half-time rate for the overtime hours, resulting in overtime pay being calculated at 150% (“time-and-one-half”) the regular hourly rate. The difference between using the “fixed salary for fluctuating workweeks” method to calculate an employee’s overtime pay versus paying time-and-a-half for each hour over 40 per week can be substantial (3 times as much overtime pay). The fluctuating workweek / Chinese overtime calculation is much more favorable for employers and far less favorable for workers – workers earn less for each overtime hour worked and employers save on overtime wage costs.While the labor laws on overtime pay at the federal level (and for most states) permit non-exempt salaried workers’ overtime pay to be calculated using the fluctuating-workweek method (aka Chinese Overtime), there are currently 7 states that prohibit or limit such pay schemes:
If you worked in Alaska, California, New Mexico, Pennsylvania, Connecticut, Montana, or New Jersey and were paid half-time for overtime under a fixed salary for fluctuating hours (Chinese Overtime) pay scheme, you may be owed back overtime pay.
What is the Fluctuating-Workweek Method of Calculating Overtime Pay?This is the method that some used to refer to informally as “Chinese Overtime”. This scheme results in an employee’s regular hourly rate of pay varying from week to week. The regular rate for each week is obtained by dividing the salary by the number of hours worked in the week and cannot be less than the applicable minimum wage in any week. Since straight-time compensation has already been paid, the employee must receive additional overtime pay for each overtime hour worked in the week at not less than one-half this regular rate.
How Much of a Difference Does the Method of Calculating Overtime Pay Make?Examples: FLUCTUATING-WORKWEEK OVERTIME CALCULATION METHOD If an employee is paid a salary of $500.00 per week on a fluctuating workweek basis and works 45 hours one week, their overtime pay is calculated as follows: $500/45 hours = $11.11 regular rate. Since their salary covers all hours worked at straight time, they are due half-time pay for hours worked over 40: $11.11 / 2 = $5.56 x 5 hours = $27.78. To use this method:
- the employee must have a work schedule with fluctuating hours, i.e., not be on a fixed schedule,
- and must be paid a fixed salary that is meant to be straight-time compensation for all hours worked in a workweek, whether the employee works less than or more than 40 hours per week.
- With almost no exceptions, no reduction in the salary may be made for short workweeks.
- In addition, the salary must be large enough to ensure that the regular rate will never drop below minimum wage.