What is Chinese Overtime and is it legal?

Chinese_Overtime_FLSASometimes referred to as “Chinese Overtime” , “variable workweek” or “half-time” method, the Fluctuating Work Week (FWW) method of calculating overtime is permitted by the Fair Labor Standards Act (FLSA) and used by employers as a cost saving measure.

The sentiment of workers about FWW is best explained by the Urban Dictionary:

Chinese Overtime, n. “when the amount of $$ you earn by working overtime is actually less than what you earn in your normal time.”

Companies need to think carefully before implementing this method of paying overtime because errors in implementing the fluctuating work week method  can result in the employer being required to recalculate and pay back overtime plus additional penalties.

How Fluctuating Work Week Works

Traditionally, overtime premium is paid at time and a half (1.5) of the hourly rate for all hours worked over 40 hours a week.  With a fluctuating workweek method, a salary is paid for all hours worked, with half time for all hours worked after 40 hours.  The employer establishes a weekly salary that is intended to be the regular base pay for all hours worked.

  • The employer determines the employee’s regular base rate by dividing the actual hours worked each week into the fixed salary.
  • The fixed weekly salary is considered payment of straight time pay for all hours worked. The employer is only required to pay the additional “half time” premium for all time worked over 40 hours.

Example-  Let’s assume that an employee and the employer have a “clear mutual understanding”  that the fixed weekly pay is $600 per week.  If one week the employee works 60 hours, the worker’s regular rate of pay is $600/60 = $10.00. The $600 fixed salary covers all straight time so the overtime due is the additional half time premium for all hours worked over 40 ($10.00 x .5 = $5 * 20hrs = $100).

The second week the same employee works 45 hours. During this week employee’s regular rate is $600/45 = $13.33. Overtime is halftime on all hours over 40 ($13.33 x .5 = $6.66 * 5hrs = $33.33).

During the third week, the employe only works 25 hours and gets paid $600; the mutually agreed upon fixed weekly salary amount.   In most cases, there may be some cost savings to the employer by using the fluctuating work week method.

Requirements for Fluctuating Work Week

Under the Fair Labor Standards Act (FLSA), employers utilizing this method must meet the following requirements:

1. The employee’s hours must fluctuate from week to week;

2. The employee must receive a fixed salary that does not vary according to the hours worked each week;

3. The fixed weekly amount must exceed the minimum wage in any given week;

4. The employer and employee must have a clear and mutual understanding that the employer will pay a fixed salary regardless of the hours actually worked.

Possible Violations and Illegal use of Chinese Overtime

An employer that pays workers overtime on a fluctuating work week method incorrectly risks being sued for an overtime violation.  Some examples of overtime violations under the fluctuating work week method are as follow:

  • Work hours and schedules do not fluctuate each week.  By it’s very name, the “fluctuating” work week method is a method of calculating overtime that can only be used when the nature of the work results in fluctuations in the work hours and prevents the employee from working regular hours.  Chinese overtime is not something that employers can establish just because they want to do it that way.
  • Failure to establish a “clear mutual understanding” -The FLSA requires that there be a “clear mutual understanding” between the employer and the employee agreeing that the fixed salary is intended as straight-time compensation for all hours worked by the employee regardless of the number of hours.  This understanding can be recorded in a written agreement.  While the lack of a written agreement on the fluctuating work week method alone is not grounds for a lawsuit, the lack of a written agreement is a good indication that something is wrong.  As a result, the employer should have a written consent agreement signed by the employee acknowledging that the employer will be using the “fluctuating workweek” computation for overtime.
  • Violation of the minimum wage law.  The fixed salary must provide compensation (every week) at not less than the minimum wage.
  • Deductions from salaries for absences like vacation or illness, docking pay for unscheduled absences, non-payment of salary for weeks where the employee worked less than 40 hours a week.
  •  Applying differentials to shift, weekend or holiday work or payment of  bonuses, commission or any other types of additional compensation are in violation of the fluctuating work week method of pay because the employee is not receiving a fixed salary each week.

While the violations above are not exhausted, they reflect some of the most common reasons employer faced overtime lawsuits under the Fair Labor Standards Act (FLSA).  We have seen these types of lawsuits all over Texas, Louisiana, Mississippi, Nevada, California, and New York.

If you have more questions about the fluctuating work week method of calculating overtime or any other wage and hour questions, please contact the employment lawyers at the Tran Law Firm.