On August 27, 2012, the District Court for the Western District of Pennsylvania ruled that the Pennsylvania Minimum Wage Act ("PMWA") does not permit employers to use the fluctuating workweek method of calculating overtime pay, even though federal law permits it.
In Foster v. Kraft Foods Global Inc., 2012 WL 3704992 (W.D. Pa. Aug. 27, 2012), Plaintiff Terri L. Foster (“Foster”) was a former sales representative of Kraft Foods Global, Inc. (“Kraft”). Kraft is a multi-state employer, but Foster only serviced clients in Pennsylvania. On July 1, 2007, Kraft adopted the fluctuating workweek method of overtime compensation. Although Foster began a medical leave after just 16 days (from which she never returned), she claimed that she had worked overtime during that period for which she was not adequately compensated.
Under the fluctuating workweek method of overtime calculation, an employer divides an employee’s weekly salary by the number of hours he or she worked in a given week. See 29 C.F.R. §778.114. The resulting hourly rate is called the employee’s “regular rate.” If an employee works more than 40 hours in a week, he or she is then compensated for the overtime hours at half their regular rate. This method of overtime calculation is permissible under federal law so long as it does not cause an employee’s regular rate to drop below minimum wage.
Foster argued that the fluctuating workweek method of overtime payment did not apply in Pennsylvania because the PMWA requires employers to pay employees at a rate of time and a half for all hours worked in excess of 40 hours per week, see 34 Pa. Code §231.43(d)(3), and the PMWA's regulations do not specifically provide for the fluctuating workweek. The court agreed.
The court ruled that, given the plain language of §231.43(d)(3), employers cannot apply the fluctuating workweek in Pennsylvania because, in doing so, they would fall short of the minimum time and a half overtime pay requirement set forth in the PMWA. The court reasoned that this conclusion was not adverse to federal law, inasmuch as the relevant regulation, 29 C.F.R. §778.114, states that a rate of half-time for overtime in the fluctuating workweek is a minimum requirement (i.e., employers are free to pay more than the minimum, in this case, time and a half). The court also observed that, while Pennsylvania has chosen to adopt many aspects of federal wage and hour laws, its failure to expressly adopt the federal fluctuating workweek regulation demonstrates that it did not intend to permit such an arrangement.
Thus, it appears that employers in Pennsylvania cannot use the fluctuating workweek method of overtime pay calculation and must, instead, pay at a rate of at least time and a half for hours worked over 40 per workweek. The Foster decision also serves as a good reminder that, while most states follow federal wage and hour laws, that is not always the case and employers need to consider applicable state laws when dealing with wage and hour issues.