Employers faced with escalating employee overtime costs may consider implementing an alternative pay plan called the fluctuating workweek (FWW). In short, in return for paying a guaranteed salary to non-exempt employees, FWW allows employers to pay a half-time overtime premium instead of the usual time and one-half overtime rate. Last week, the Second Circuit Court of Appeals upheld a retailer’s use of FWW in the face of technical challenges.

In Thomas v. Bed Bath & Beyond, Inc., the employer classified department managers as non-exempt and used FWW to calculate overtime. In a collective action claim, managers alleged that FWW could not be used because (1) their hours did not actually fluctuate and (2) the employer allowed them to take paid time off to make up for working holidays or previously scheduled days off. The district court granted summary judgment for the defendant, and the plaintiffs appealed to the Second Circuit.

On appeal, the Second Circuit affirmed the dismissal. Even though the plaintiffs’ working hours did not fluctuate above and below 40 hours per week, the court held that such fluctuations are not required in order to use the FWW method. In terms of days off, the Second Circuit found that employers can provide such flexibility as long as they do not deduct from the guaranteed salary. The court also noted that for employees on reduced hours FMLA leave, employers may temporarily move them from FWW to another pay plan, as long as this is consistently done for all similar employees.

FWW is not the best option for all employers. The method requires payment of a guaranteed salary and imposes an administrative burden involved in calculating the overtime premium. However, for companies struggling with overtime costs, FWW is an alternative worth exploring.