When do employers risk FLSA violations by raising and lowering hourly wage rates?

The Fair Labor Standards Act can present a minefield for even the savviest wage-and-hour gurus. Last night, I read a Pennsylvania federal court decision that helps clarify when employers can (and can’t) adjust employee pay rates.

The FLSA requires employers to pay non-exempt employees one-and-one-half times their regular pay rate when they work more than 40 hours in a workweek. The plaintiff in the lawsuit alleged that her employer manipulated her hourly base pay rate to deprive her of overtime compensation.

Specifically, the plaintiff claimed that after the company hired her, but before she began working, she signed a rate sheet setting her hourly wage at $11.00. The rate sheet stated that the plaintiff’s hourly rate might change if her hours increased or decreased.

Indeed, it did. According to the plaintiff, the following day (before she began working), she signed another rate sheet lowering her hourly wage to $10.25. Apparently, an increase in hours motivated the company to lower her hourly rate by $0.75. According to the plaintiff, she then began working and was paid the $10.25 hourly rate, including time and a half for overtime. Many months later, the company raised her hourly wage to $11.00.

The plaintiff argued that the company had unlawfully reduced her pay rate to $10.25 at the beginning of her employment. Instead, it should have remained at $11.00 per hour.

Did the company do anything unlawful here?

No. The company was within its rights to reduce the plaintiff’s hourly rate before her job commenced. There’s also nothing wrong under the FLSA with the company giving her a raise months later.

But let’s change the facts a bit.

Assume the company paid different rates from week to week for the same work. Let us also assume that the company justified the difference by no factor other than the number of hours worked by the individual employee – the longer he works, the lower the rate. According to the U.S. Department of Labor, that device is evasive. In that situation, the rate paid in the shorter or non-overtime week is his regular rate for overtime purposes in all weeks.

Similarly, the DOL has clarified that “the hourly rate paid for the identical work during the hours over the applicable maximum hours standard cannot be lower than the rate paid for the non-overtime hours nor can the hourly rate vary from week to week inversely with the length of the workweek.”

The court flagged other potential problems like “split-day” schemes or increasing the hourly rate during overtime hours.

All this is to say that you should talk to a lawyer before tinkering with hourly wages from week to week.

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Speaking of hearing lawyers talk, what better way to end your week than with the latest edition of The Employer Handbook Zoom Office Happy Hour, which returns tomorrow, October 28, 2022, at Noon ET. We’re discussing leave rights and accommodations in hybrid and fully-remote workplaces.

Click here (https://bit.ly/HybridRemoteAccommodations) to register.

And, folks, we lucked out with my special guest this week. If you’ve attended any major HR conference involving the Family and Medical Leave Act or the Americans with Disabilities Act, odds are, you’ve seen David Mohl present, and he has blown you away!

David is a labor and employment attorney with extensive law firm and in-house experience, including building and leading the corporate legal functions of Fortune 500 companies. His skill set is diverse, but his wheelhouse is in leave management, focusing on the Americans with Disabilities Act, Family and Medical Leave Act, paid sick leave, and related leave statutes and policies.

David and I will address considerations for evaluating accommodation requests, FMLA compliance and pitfalls, manager responsibilities, and other best practices. We’ll also entertain some audience Q&A without dispensing any legal advice or creating any attorney-client privilege.

Even though this Zoom is intended for companies with hybrid and fully-remote workforces, the rest of you are welcome to attend. You may also pick up a few ADA/FMLA tips for your business.

If you nerd out on this stuff, please join David and me on Friday, October 28, 2022, at Noon ET for the next edition of The Employer Handbook Zoom Office Happy Hour.