All overtime work that is ordered or approved must be compensated, according to the Fair Labor and Standards Act (FLSA). Wages earned are a pretty straightforward calculation when it comes to those who work for pay on an hourly basis. The FLSA mandates that an employee paid on an hourly basis must receive overtime compensation, and the FLSA overtime calculation is 1.5 times that of the employee’s regular hourly wage for every hour over forty worked within the seven-day week.
For example, if someone earns $20/hr, then their forty-first paid hour in a workweek earns $30/hr. “Chinese overtime” may be a politically incorrect, outdated term; but it’s a term that still gets thrown around and it’s an issue for modern workers. Otherwise known as the fixed salary for a fluctuating workweek, piece-rate pay formula, or day rate—it is designed to offer recompense for salaried employees who are putting in extra hours, people who work strictly for a fixed salary, with the general understanding that these employees are receiving fair salaries that reflect the type and amount of work being done.
Instead of time-and-a-half, this fixed salary for fluctuating workweek “overtime” equals half of the employee’s regular rate for any work hours above forty in a week. The idea is that if you earn a “full-time salary”, then paying half-time for hours over forty (on top of your salary) is equivalent to paying you time-and-a-half, and therefore equitable to the overtime rule for employees paid on an hourly basis.
The FLSA wording is such that employees covered by the Act “must receive overtime pay for hours worked in excess of 40 in a workweek at a rate not less than time and one-half their regular rates of pay.” There is no limit to the number of hours an employee may work in a workweek, and those hours may occur on Saturdays, Sundays, holidays, or any other day, so long as forty hours of work fall within seven consecutive 24-hour periods, such that the fixed workweek makes up forty hours within a regularly recurring period of one hundred and sixty-eight hours.
What is Chinese Overtime?
If an employee’s hours vary from week to week, and that employee is salaried, their employer may utilize a calculation method for overtime called “fixed salary for fluctuating workweeks.” The employer or the employee may casually refer to this structure as “Chinese overtime.” It’s a method that generally comes out in favor of the employer’s bottom line; however, it may only be implemented if specific criteria are met. The protocols very specifically include the following:
To be a fit for fixed salary for fluctuating workweeks, an employee must work variable and inconsistent hours during their given workweek and must be paid a fixed salary for all hours worked, whether the employee works less than or more than forty hours within a given week. This means that the employee receives full pay for weeks when less than forty hours are worked, when and if that occurs.
And finally, the salary must be high enough that the effect of sliding scale overtime will not enable the regular rate (in dollars/hour) to ever drop below minimum wage. The regular rate refers to the employee’s fixed salary divided by that week’s hours of work. Since the fixed salary is presumed to compensate the employee for all hours worked, overtime hours need only be paid at a 0.5 rate, rather than a 1.5 rate.
“Straight Time” is paid once, so any additional time that is deemed or approved as “overtime hours” will be paid to the employee on top of their salary and at half-time, in order to bring the employee’s overtime pay up to time and a half.
The math is meant to work out so that in high-overtime weeks, the regular rate is effectively reduced, and the employer gets a break; yet, on the other hand, if the employer fails to supply adequate work to fill a forty-hour week, the onus is on the employer to pay full salary, even to employees who may only be working twenty or thirty hours per week.A fixed salary for fluctuating workweeks may work in a situation where the seasonality of work applies.
A schedule that simply varies plus or minus a couple of hours from week to week isn’t a good fit, even though, officially the regulation does not say just how much or precisely how often the employee schedule needs to fluctuate to be considered variable. To qualify and meet the intent behind the design of this structure, the variability of hours worked doesn’t need to be day-to-day or week-to-week, but might look like an employee working longer hours during a “busy” season, as compared with other parts of the year when the workflow might naturally be relatively slow.
Why is it called Chinese overtime?
“Chinese Overtime” is a slang term, perhaps meant to summon to mind the principles of a communist government, and something not quite consistent with “the American Dream.” In reality, the fluctuating workweek is not a Chinese idea nor a Chinese business practice. Chinese labor laws are overall reasonably employee-friendly, especially when compared to a lot of employer policies and employee treatment here in the United States
Dose China pay overtime?
Chinese labor laws contain very specific rules when it comes to overtime pay. Some of the standard rules regarding overtime pay in the People’s Republic of China include that time and a half be paid for hours exceeding eight worked within a single day. Also, double the regular rate is due to employees for any work performed on a Saturday or a Sunday; and triple the regular rate is due to employees who work on official holidays.
Overtime may not be accumulated more than thirty-six hours within a given month, and employees may not be asked to perform more than three hours of overtime work on any given day. This may look surprisingly generous compared with what is laid out by the FLSA!
However, there are a couple of overtime pay requirement loopholes meant to soften the burden on employers. An employee’s contract can include modifications to these rules, or an employee’s contract can be amended to include specified alternative protocols. Both loopholes require employee consent and third-party approval.
What is weighted overtime?
Another confusing type of overtime calculation, which can play into the fluctuating work-week scheme, comes into effect when an employee performs a few different jobs within a given company. For example, this could be a restaurant that flexes some of its employees between waiting tables for $10/hour (where tips are factored into the overall take-home pay) and pays $15/hour when the same employee works taking reservations and greeting and seating guests.
Weighted overtime, also called blended overtime, can be calculated in four steps: calculate the hours worked at each base pay, determine the average pay rate, calculate the weighted overtime total, and finally, determine the employee’s overall payment due for the week. Weighted overtime, according to the Department of Labor’s fact sheet #23, is based on the “regular rate for that week as calculated by the weighted average of such rates.”
Is Chinese Overtime legal in the United States?
Yes, a fixed salary for fluctuating workweeks is a legal overtime structure in the United States, under certain circumstances. To legally pay any employee what some call “Chinese overtime,” all of the following requirements must be met. For starters, variable work hours must be a part of the employee’s regular week to week schedule. The employee must also receive a regular pay-rate, which can then be used to calculate their half-rate for overtime, and that half-rate must come in under federal minimum wage requirements.
It is also important that both the employer and employee understand, upon hiring, that the employee’s stated salary is intended to cover all workweeks and all work hours worked, even if those hours fall well below forty. If an employer does not execute the fluctuating workweek pay method according to these stipulations and under these circumstances, the employer may be subject to litigation regarding federal overtime law.
Mistakes that employers may make when trying to implement fixed salary for fluctuating workweeks include paying employees less than their fixed salary for weeks where they work fewer than forty hours or applying a fixed salary for fluctuating workweeks model to a workweek that does not actually fluctuate significantly. Alternatively, if the employee’s salary is not a fixed salary, on the basis that they also receive a commission, bonuses, shift pay, holiday pay, or any other additional forms of compensation, a fixed salary for fluctuating workweek is not a legal arrangement.
Lack of communication can also lead to legal trouble. Since both parties must be well informed about fluctuating workweek policies, it is problematic if the employee has not been made fully aware of the employer’s practice. Also, if the sliding scale effect of this type of overtime structure brings the employee’s hourly rate for the week below the federal minimum wage, the employer is breaking the law.
Chinese Overtime at Coca-Cola and Pepsi
Employees are rightly disgruntled when “half-time overtime” feels exploitative, so lawsuits all over the United States are challenging the legality of this overtime structure’s implementation. The Pepsi Beverages Company is one among a long list of employers that are undergoing litigation related to their practice of incorrectly paying employees fluctuating workweek overtime.
A class-action lawsuit in Massachusetts that addresses PepsiCo practices in 2011 and 2012 claims that Pepsi was not following the specific protocols that make that overtime compensation structure permissible and should therefore not have been permitted to pay the 50% of standard-rate overtime rate.
The named plaintiff, in that case, made his claim on the basis that he and others were not fixed salary employees at PepsiCo. He stated that they received adjusted pay depending on the circumstances, including reduced holiday wages; commissions paid based on specific and agreed-upon criteria; and bonuses for working extra days of the week, such as Saturday or Sunday, to the tune of $175-$200.
Coca-Cola has also been used as an example, concerning employees on its merchandising routes. For example, a large company like Coca-Cola exploiting fluctuating workweek overtime might look like this: A salaried driver, making $1,000/week is assigned a daily route that takes ten to fourteen hours to complete. The job cannot be completed within a standard forty-hour workweek, and yet, for putting in the extra time to complete the route, the driver goes from making $25 per working hour to an average more like $17 per working hour. It’s effectively sliding scale overtime.
Sliding scale overtime means that the more hours you work, the less you get paid per hour. This way, the work the company needs to be completed gets done at a lower per-hour cost to them, incentivizing the company to, for example, make routes longer and keep their employees working long hours.
If informal terms like “Chinese overtime” are being thrown around at your place of work, and something doesn’t seem fair or doesn’t feel right, maybe it isn’t. If this describes your sense of things, you might want to take a step further and move toward recovering unpaid wages for overtime work. You should know that under the Fair Labor Standards Act, a person cannot be fired or have any action taken against them for proceeding against their employer or filing a formal complaint.
It’s probably fair to say that most employers apply to fluctuate workweek protocols incorrectly. A minor honest mistake can undermine the entire compensation structure and undo that legality of its practice as applied to all other weeks worked. In these cases, employers owe back wages to their employees, and if that might be you, consider getting in touch with a business lawyer.