On May 25, 2017, the Nevada Labor Commissioner posted an Advisory Opinion¹ stating that the fluctuating work week method (FWW) may be used to compensate certain nonexempt employees.  The Advisory Opinion stated the FWW method of compensation is permissible for a nonexempt employee who is paid a fixed-salary for all hours worked, for overtime hours worked in excess of 40 per week under NRS 608.018, Nevada’s overtime statute.  This Advisory Opinion is significant because it is the first time Nevada has formally endorsed the FWW for use under state law.

The Fluctuating Work Week Method

The FWW method is an accepted manner under federal law for compensating nonexempt employees who are paid a salary for all hours worked.  See, 29 CFR §778.114(1).  Under this method, the employee’s fixed salary is considered straight-time compensation for all hours worked, whether less or more than 40 in the workweek.  To fulfill its overtime obligation, the employer must pay, in addition to the salary, one-half of the regular rate of pay for any overtime hours worked during the week.  The regular hourly rate for the week is determined by dividing the number of hours the employee worked in the workweek into the weekly portion of the base salary.  For hours worked over 40, the employer compensates the employee by paying an additional one-half (50%) of the employee’s regular hourly rate for that week for each hour worked over 40.   

Advisory Opinion

The Labor Commissioner was asked to address the following question:

May an employer in Nevada use the fluctuating workweek method (FWW) to compensate a nonexempt employee, who is paid a fixed-salary for all hours worked, for overtime hours worked in excess of 40 in a week of work under NRS 608.018?

The Labor Commissioner responded that Nevada’s overtime statute, NRS 608.018(2) did not provide for what method must be used to calculate the “regular wage rate;” however, Nevada’s Administrative Code, NAC 608.125, states that the regular wage rate should be calculated by dividing the amount paid to an employee in a week by the number of hours worked by the employee during the week.  Accordingly, Nevada law permits the use of the FWW method.

The Labor Commissioner noted that federal law permits the use of the FWW method as it is specifically provided for under the Fair Labor Standards Act (FLSA) 29 CFR §778.114(1).  The Labor Commissioner further opined that under federal law the FWW method is approved for situations wherein a fixed salary employee is also paid commissions and bonuses.

Comparing federal law to Nevada law, the Labor Commissioner found that there was no conflict between the two and that “NAC 608.125 and CFR §778.114 are in harmony with one another.” It went on to state that, “NAC 608.125 should be considered the equivalent of CFR §778.114.”  As such, the Labor Commissioner concluded that it approves the FWW method for determining the overtime rate for fixed-salary employees that also receive commissioner and/or bonuses as long as those commissioner and/or bonuses are included in the weekly amount of pay when determining the employee’s “regular wage rate.”  

Implications

The Nevada Labor Commissioner’s Advisory Opinion provides much-needed clarity regarding the legality of the FWW method in Nevada. With this approval of the FWW method, employers and nonexempt employees whose work schedules may vary from week to week have significantly more flexibility with regard to pay structures.  Since the FWW method has long been endorsed and used under federal law it is the subject of federal regulations and numerous court decisions.  It is extremely important the FWW be implemented in accordance available guidelines.  Accordingly, employers are cautioned to seek legal counsel and guidance before implementing the FWW to compensate employees for overtime work under state law.