**24.16.2554** REDUCING THE FIXED WORKWEEK FOR WHICH A SALARY IS PAID

(1) If an employee whose maximum hours standard is 40 hours was hired at a salary of $80 for a fixed workweek of 40 hours, his regular rate at the time of hiring was $2 per hour. If his workweek is later reduced to a fixed workweek of 35 hours to earn $80, so that he earns his salary at the average rate of $2.29 per hour. His regular rate thus becomes $2.29 per hour; it is no longer $2 an hour. Overtime pay is due under the law only for hours worked in excess of 40, not 35, but if the understanding of the parties is that the salary of $80 now covers 35 hours of work and no more, the employee would be owed $2.29 per hour under his employment contract for each hour worked between 35 and 40. He would be owed not less than one and one-half times $2.29 ($3.44) per hour, under the statute, for each hour worked in excess of 40 in the workweek. In weeks in which no overtime is worked only the provisions of section 39-3-404 requiring the payment of not less than the applicable minimum wage for each hour worked, apply so that the employee's right to receive $2.29 per hour is enforceable only under his contract. However, in overtime weeks the Administrator has the duty to insure the payment of at least one and one-half times the employee's regular rate of pay for hours worked in excess of 40 and this overtime compensation cannot be said to have been paid until all straight time compensation due the employee under the statute or his employment contract has been paid.
Thus if the employee works 41 hours in a particular week, he is owed his salary for 35 hours - $80, 5 hours pay at $2.29 per hour for the 5 hours between 35 and 40 - $11.45, and one hour's pay at $3.44 for the one hour in excess of 40 - $3.44, or a total of $94.89 for the week.

(2) Effect if salary is for variable workweek. The discussion in the prior section sets forth one result of reducing the workweek from 40 to 35 hours. It is not either the necessary result or the only possible result. As in all cases of employees hired on a salary basis, the regular rate depends in part on the agreement of the parties as to what the salary is intended to compensate. In reducing the customary workweek schedule to 35 hours the parties may agree to change the basis of the employment arrangement by providing that the salary which formerly covered a fixed workweek of 40 hours now covers a variable workweek of up to 40 hours. If this is the new agreement, the employee receives $80 for workweeks of varying lengths, such as 35, 36, 38, or 40 hours. His rate thus varies from week to week, but in weeks of 40 hours or over, it is $2 per hour (since the agreement of the parties is that the salary covers up to 40 hours and no more) and his overtime rate, for hours in excess of 40, thus remains $3 per hour. Such a salary arrangement presumably contemplates that the salary will be paid in full for any workweek of 40 hours or less. The employee would thus be entitled to his full salary if he worked only 25 or 30 hours. No deductions for hours not worked in short workweeks would be made.

(3) Effect on hourly rate employees. A similar situation is presented where employees have been hired at an hourly rate of pay and have customarily worked a fixed workweek. If the workweek is reduced from 40 to 35 hours without reduction in total pay, the average hourly rate is thereby increased. If the reduction in work schedule is accompanied by a new agreement altering the mode of compensation from an hourly basis to a fixed salary for a variable workweek up to 40 hours, the results described in subsection (2) of ARM 24.16.2554 follow:

(4) Effect on salary covering more than 40 hours' pay. The same reasoning applies to salary covering straight time pay for a longer workweek. If an employee whose maximum hours standard is 40 hours was hired at a fixed salary of $110 for 55 hours of work, he was entitled to a statutory overtime premium for the 15 hours in excess of 40 at the rate of $1 per hour (half-time) in addition to his salary, and to statutory overtime pay of $3 per hour (time and one-half) for any hours worked in excess of 55. If the scheduled workweek is later reduced to 50 hours, with the understanding between the parties that the salary will be paid as the employee's nonovertime compensation for each workweek of 55 hours or
less, his regular rate in any overtime week of 55 hours or less is determined by dividing his salary by the number of hours worked to earn it in that particular week, and additional half-time, based on that rate, is due for each hour in excess of 40. In weeks of 55 hours or more, his regular rate remains $2 per hour and he is due, in addition to his salary, extra compensation of $1 for each hour over 40 but not over 55 and full time and one-half, or $3, for each hour worked in excess of 55. If, however, the understanding of the parties is that the salary now covers a fixed workweek of 50 hours, his regular rate is $2.20 per hour in all weeks. This assumes that when an employee works less than 50 hours in a particular week, deductions are made at a rate of $2.20 per hour for the hours not worked.

History: Sec. 39-3-403, MCA; __IMP__, Sec. 39-3-405, MCA; Eff. 12/31/72.