The Fluctuating Workweek and Commission Pay

We’ve noticed some cases recently filed challenging employers’ use of the fluctuating workweek method to determine the overtime compensation for employees who receive commission payments. Plaintiffs are alleging that this practice is not permitted by the Fair Labor Standards Act (FLSA) when employees earn commissions in addition to their salaries. However, this issue is unresolved, and precedent seems to favor the employer defendants.

The fluctuating workweek method is permitted by FLSA regulation 29 C.F.R. § 778.114, promulgated by the Department of Labor to implement the Supreme Court's holding in Overnight Motor Transp. Co. v. Missel, 316 U.S. 572, 580 (1942). This method permits employers to pay non-exempt employees pursuant to the fluctuating hours method if five criteria are met:

1. The employee's hours must fluctuate from week to week;

2. The employee must receive a fixed weekly salary that remains the same regardless of the number of hours worked per week;

3. The fixed salary must be sufficient to provide compensation at a regular rate not less than the legal minimum wage;

4. The employee must receive at least 50 percent of his regular hourly pay for all overtime hours worked; and

5. The employer and the employee must have a clear mutual understanding that the fixed salary is compensation (apart from overtime premiums) for the hours worked each workweek.

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