A federal court in Pennsylvania ruled that the fluctuating workweek method of calculating overtime, while compliant with the Fair Labor Standards Act, violates Pennsylvania’s Minimum Wage Act (“PMWA”). The fluctuating workweek method of calculating overtime permits an employer to pay a non-exempt employee a fixed, weekly salary, regardless of the number of hours that employee works. Overtime is then paid at 50% of the regular rate of pay, rather than 150% of the regular rate of pay. The regular rate of pay is calculated by dividing the fixed salary by the total number of hours worked in the applicable week. Using this method benefits employers whose employees typically work in excess of 40 hours per week.

In Foster v. Kraft Foods Global, Inc., the Federal District Court for the Western District of Pennsylvania ruled that the PMWA requires employers to pay overtime at 150% the regular hourly rate, regardless of any agreement to utilize the FLSA’s approved fluctuating workweek method.  Employers may nevertheless still use the total number of hours worked to calculate the regular rate (e.g. weekly salary amount divided by total hours worked in the given workweek), which still results in some savings from the traditional calculation of overtime.  This decision makes clear however, that compliance with the FLSA’s computation of the fluctuating workweek overtime rate does not equal compliance with the PMWA.

In light of this decision, employers in Pennsylvania who use the fluctuating workweek method to calculate employee overtime should revisit their policy and consult with their legal counsel to ensure they are complying with this latest court decision.