Do you pay each of your employees a salary rather than by the hour or the piece? In many ways that probably seems simpler. Employees will receive the same wages every week, no matter how many hours they work or how much work they get done, and you don’t have to worry about overtime. Or do you? You may be wondering if this is a silly question. If employees are salaried then they’re exempt from and therefore not eligible for overtime, right? Wrong! Only if the job meets specific criteria outlined in one or more exemption categories under the FLSA or state wage and hour laws will they be overtime-exempt. (I’ve written about the specific FLSA exemption categories here, here, and here.
Does that mean that an employee can receive a salary and still be non-exempt, i.e. be eligible for overtime pay? Yep. ( You also still have to meet the FLSA’s minimum wage and record keeping requirements.)
There is so much confusion around this issue (and any issue regarding wage and hour law) that I thought it would be a good idea to stop and explain how and when a salaried, non-exempt employee receives overtime pay. So how do you deal with salaried non-exempt employees and overtime pay? Great question! Read on to learn more.
You have at least 3 options. Let’s start with paying a fixed salary for an agreed-upon set number of hours worked each week. What do you need if you use this method to pay a salaried, non-exempt employee? First and foremost you need a clear understanding –and yes, it should be in writing–of the number of hours worked per week that the fixed salary represents. That number of hours can be whatever you want. It can, but need not be, 40. It can also be more or less than 40. You can also choose whatever salary amount you want, as long as the amount, divided by the number of hours worked is equal to or greater than the federal (or if applicable, the state) minimum wage. This is also known as the regular hourly rate. You get it by dividing the weekly pay amount by the agreed-upon hours.
Moving right along: When an employee works more than 40 hours in a given week, then s/he receives for each over over 40, 1.5 times his/her regular hourly pay rate. When the employee works fewer than the agreed upon number of hours, s/he only gets paid for the number of hours s/he actually worked. But what if the salary is based on working more than 40 hours a week? Wouldn’t the employee always have to get overtime then? Hold that question, because I’ll answer that shortly. Let’s look at some examples of how this method works.
Let’s start with the easiest scenario, a salary based on 40 hours regularly worked each week: You pay the salary for the first 40 hours, and for all additional hours worked that week you pay the overtime rate. Here’s an example of how that would work:
Your Administrative Assistant earns $41,600 a year. His weekly salary then is $800 ($41,600 /52 = 800). His hourly rate is $20.00 (800/40 = 20). His overtime rate is 30.00 (20.00 x 1.5 = 30.00). If last week was a busy week and he worked 45 hours, your company will owe him 5 hours of overtime, or $150.00 (30.00 x 5 = 150.00) on top of his regular salary of 800.00. His total pay for that week is $950.00.
What if he only works 35 hours that week? You only have to pay him for those 35 hours or $700.00 (20.00 x 35 = 700.00).
What happens when the salary is based on the employee working more than 40 hours a week ? You then have 2 choices: 1) You pay a straight time salary for the total number of hours, then half-time for the number of overtime hours already included in the base salary, and then if the employee works additional hours in a given week, you pay time and half for those hours. Here’s how that might work:
Your administrative assistant’s $41,600 salary is based on him working a 48 hour week. As already established his weekly salary is $800 and his hourly rate is $20. In a regular workweek your company will owe him an additional 8 hours of half time pay of $10 per hour or $80 per week, on top of his regular weekly salary of 800, bringing his weekly pay to $880.00, bringing his annual salary to $45,760.00.
So what’s the second option? You pay the salary and include the overtime rate. If the employee works more than the set number of hours, you pay the additional hours and 1.5 the regular hourly rate. If the employee works fewer than the agreed upon hours you only pay for those hours, plus the appropriate amount of overtime if s/he still worked more than 40 hours that week. Here’s how that might work:
Your company and your administrative assistant have an agreement that he will receive an annual salary of $45,760, for a regular 48 hour a week schedule. He receives a straight time rate for the first 40 hours and time and a half for the next 8, or $41,600 + $4,160 = $45,760.00. For any week in which he works more than 48 hours, he must receive additional pay at time and a half, because his weekly salary does not cover those hours.
OK, you may be thinking, but what if the salary is based on working less than 40 hours a week? Here, you would pay the salary for the set number of hours worked that are less than 40. For any hours worked between the set amount and 40, you pay his straight time rate for those hours, and for any week where he works more than 40 hours, you pay time and a half for the hours that are over 40. Here’s how that might work:
Let’s assume your administrative assistant gets the same $41,600 annually for working 35 hours a week. His weekly salary is $800. His hourly rate is $22.85. Last week he worked 45 hours. He gets straight time for 5 hours (36-40 = 22.85 x 5 = $114.28 and he gets time and a half for the remaining 5 hours. (22.85 x 1.5 = 34.27 x 5 = $171.37. His total pay for that week is $971.37.
This method works best if your employees’ weekly hours rarely or never fluctuate. But what if they do? You have another option known as the Fluctuating Workweek (FWW) also known as a Belo contract. Since I’ve thrown lots of numbers and dry information at you already though, let’s save that for next week’s post, shall we? See you then!
Contents of this post are for educational/informational purposes only, are not legal advice, and do not create an attorney-client relationship. Consult with competent employment counsel in the state(s) in which you employ people with your specific questions.
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