Competition in the global economy demands efficiency and increased productivity, while time off has become a higher priority for many employees. For those reasons and others, including high gasoline prices and the escalating costs of commuting, more employers are considering or adopting creative work schedules. What some of them are not doing is taking a clear-eyed look at the wage and hour ramifications of these arrangements. There are potential pitfalls—under both federal wage and hour law and the requirements and limitations of other jurisdictions—that demand close attention.
The impact of the Fair Labor Standards Act
The Fair Labor Standards Act is the general federal wage and hour law covering millions of employees across the U.S. Its requirements include that an employer must establish (and document) at least one seven-day "workweek" for employees. The workweek can be set to begin on any day and at any time of day, but thereafter the employer must pay nonexempt workers the proper overtime premium for all hours worked over 40 hours in the workweek. It is important to distinguish the FLSA workweek from the sometimes different calendar week, scheduled week or "pay week."
The federal act’s parameters mesh reasonably well with what might be the simplest version of a less conventional workweek, which is one consisting of four 10-hour workdays. If all nonexempt employees actually stick precisely to that schedule and work no more than 10 hours in any workday, and if all four of their 10-hour workdays fall within a single workweek, then no FLSA overtime is due to any of them for such a workweek.
But this is not the case for an employee who, for instance, works four days of nine hours, 12 hours, 11 hours, and 10 hours, for a total of 42 hours in one workweek. In that situation, the employee is due two hours’ worth of FLSA overtime, even though he or she was not scheduled to work it.
With few exceptions, the FLSA does not allow employers to average or offset overtime hours worked in one workweek against non-overtime ones worked in another, or to "pay" for overtime in time off weeks or months later. This has tripped up unwary employers who adopt four-day/five-day alternating schedules.
Take an employer with a two-workweek pay period who schedules nonexempt employees to work four nine-hour days in the first workweek (36 hours), and four nine-hour days plus an eight-hour day in the second workweek (44 hours). This averages to 40 hours per workweek, leading the employer to the mistaken idea that no FLSA overtime is due. This is not so: The employees would be due four hours of FLSA overtime pay for the second workweek. In other words, if a nonexempt employee works more than 40 hours in either workweek, then FLSA overtime is due for that workweek.
Other employers have moved to a compressed schedule called a "9/80" plan. This arrangement establishes nonexempt employees’ schedules so that they work four nine-hour days and one four-hour day in a workweek, totaling 40 hours in the workweek. The employees’ workweek usually has to be set to end sometime during the workweek’s final workday if things are to come out in a way that does not generate overtime.
If a nonexempt employee’s actual work time is exactly what the schedule calls for, he or she will not have worked more than 40 hours in any single workweek. If the employer maintains a two-workweek pay period, and if the employee actually works during two such workweeks exactly what the schedule calls for, then naturally the individual’s hours worked in those two workweeks will total 80. In that case, no FLSA overtime pay is due for either workweek.
But whatever the employer’s expectations might be as to the typical or ordinary work time for that employee group, once again the employer must pay FLSA overtime to every nonexempt employee who ends up working more than 40 hours in either workweek. For example, if in a two-workweek pay period a particular employee works three nine-hour days, one 10-hour day and one 5.5-hour day for a 42.5-hour total in one of those workweeks, the worker would be entitled to 2.5 hours of FLSA overtime pay for that work.
In moving to an alternative schedule, some employers decide to change the affected employees’ FLSA workweek in order to fit the new arrangement into the FLSA’s requirements in a cost-effective way. An employer may even adopt different bona fide workweeks for different employee groups or locations, as long as the adjustment is intended to be a lasting one. However, employers should follow a U.S. Labor Department protocol to evaluate whether an employee has worked any FLSA overtime during the pay period in which this occurs and for ensuring that the worker receives the proper compensation for any such overtime.
Ordinarily, a workweek change involves work time that overlaps both the new and the old workweeks. The Labor Department will deem wages to have been paid properly for those hours if the employer: (1) assumes first that the overlapping hours were worked in the "old" workweek, then computes straight-time and overtime pay due for each of the workweeks, and then totals the sums; (2) performs the same calculation assuming instead that the overlapping hours were worked in the "new" workweek; and
Other laws can seriously complicate things
Even an approach passing muster under the FLSA must still be evaluated under the applicable laws of other jurisdictions in which the employer employs people. For instance, if a state’s law requires the payment of overtime premium for hours worked over some daily total, this could throw sand in the gears of an employer’s plans for an alternative schedule. California provides a good illustration.
Under that state’s requirements, nonexempt employees must be paid overtime premium for their hours worked over eight hours in a workday. An even higher premium rate is due for work over 12 hours in a workday. Consequently, a creative approach to California work schedules can result in considerably higher wage costs if it includes workdays that exceed one of these thresholds and so trigger overtime rates. Some of California’s wage orders applying to particular industries and occupations provide mechanisms for adopting a workweek of up to four 10-hour days (or, in limited circumstances, three 12-hour days) without generating daily overtime. However, the elaborate rules, procedures and conditions one must follow to do this can be daunting.
As a further example, a state’s law might call for an employee to be allowed at least one day off in every calendar week, without regard to what the employee’s workweek is for overtime purposes. Another jurisdiction could mandate that the worker be paid a premium rate for time worked on the seventh day of a workweek. An employer faced with either sort of requirement (or, even worse, both of them) must deal with yet another layer of complication in trying to balance these rules and their effects upon payroll expenses and productivity on one hand against different scheduling models and business needs on the other. Some conclude that these kinds of competing considerations simply cannot be satisfactorily accommodated by a nontraditional schedule.
Also, some jurisdictions’ laws obligate employers to give at least a specified period of advance notice before changing the terms and conditions of an employee’s compensation. Employers subject to such requirements must consider whether, how, and to what extent a change in employee schedules or workweeks might be affected by these directives. This is also true with respect to provisions saying that employers must give employees written notification of their hours of work, pay and/or related information.
There might of course be many other twists and turns as an employer explores the requirements of other jurisdictions for its alternative-schedule plans. These examples show that there is no substitute for digging into the details to find out what difficulties or obstacles the patchwork of provisions might present.
A final note of caution
Employers sometimes believe that they can bypass legal impediments to innovative scheduling by asking employees to agree to the new arrangements, particularly if the employees asked for them in the first place. If employees consent to the changes or even push for them, the thinking goes, it is no longer necessary to be concerned about the "workweek" concept, averaging overtime hours against non-overtime ones, and so on. This is a perilous misconception.
The FLSA does not recognize agreements that are contrary to its requirements. This is also usually true under the applicable laws of most other jurisdictions. Employers should not expect to defend themselves successfully by arguing that employees approved something that is inconsistent with the law.
Most wage and hour requirements were not designed to be flexible or adaptable, or to facilitate the practical concerns of modern-day employers. Instead, they were adopted years ago for a bygone working world. Nevertheless, they remain in force, and an employer is well-advised to fit alternative-scheduling plans into the legal parameters they establish.