Salary businessman carrying his jacket and texting while walking at night

Overtime must generally be paid to an employee who works more than 40 hours in a given workweek. Because of this standard, many people naturally assume that only hourly workers can receive overtime. However, salaried employees can also qualify for overtime in certain cases, and be salaried non-exempt. If you earn a salary, you should know the circumstances in which you can still be entitled to overtime pay. The Lore Law Firm takes a look at this area of wage and labor law.

What Are The Basic Overtime Requirements?

Before discussing salaries and how they relate to overtime pay, it’s important to understand the fundamentals of overtime. As a general matter, an employee who works more than 40 hours during a week is entitled to time and a half pay (overtime) for those excess hours. This means they should be paid 1.5 times their regular hourly pay for hours worked over 40. The Fair Labor Standards Act (FLSA) requires this, along with the laws in each state.

There are, however, numerous exceptions to the law. One potential class of employees who may be exempt are those who earn a salary. But before assuming that you are not entitled to overtime merely because you are paid a salary, you should first know about the nature of the salaried worker exemption.

What Is The Salary Exemption?

The FLSA does not cover certain jobs which pay on a salary basis. In order for a salaried employee to be exempt from overtime pay, the following criteria must apply:

  • The employee must earn a salary above the minimum salary threshold of $684/week (or $35,568 per year); and
  • The employee must meet the job duty qualifications for one of the FLSA’s overtime exemptions (see below)

“Salary basis” has a specific legal meaning. The employee must regularly receive a predetermined amount of compensation each pay period on a weekly, or less frequent, basis. This amount cannot be reduced because of changes in the employee’s work quality or quantity. The employee must receive the full salary to which he or she is entitled regardless of how many days or hours are worked per week.  

Additionally, the Supreme Court has recently made clear that a day rate, no matter how high, does not meet the salary basis test. This means that even highly paid workers who receive a day rate (without any guaranteed salary), are entitled to overtime pay. 

Required Job Duties

Merely being labeled a salaried employee does not necessarily qualify someone for an exemption. As mentioned above, the salaried worker must also meet the job duties test contained in federal regulations. Job titles alone do not determine whether an employee passes the test and is therefore exempt. Therefore, it is possible that a salaried employee can still qualify for overtime, either by not earning a high enough salary or by not meeting the applicable job duties test.

Executive Exemption

A salaried executive may be exempt from overtime pay if all the following criteria are met:

  • The employee must be compensated on a salary basis at a rate not less than $684 per week
  • The employee’s primary job duty must be managing the business enterprise or managing a customarily recognized department or subdivision of the business
  • The employee must regularly direct the work of at least two other full-time employees or their equivalent
  • The employee must have the authority to hire or fire other employees (or, alternatively, the employee’s hiring, firing, promotion, demotion, and/or advancement suggestions must be given particular weight)

Administrative Exemption

The following tests must all be met for a salaried administrative employee to be exempt from overtime requirements:

  • The employee must be compensated on a salary basis at a rate not less than $684 per week
  • The employee’s primary job duty must be the performance of office or non-manual work directly related to the management or general business operations of either the employer or the employer’s customers
  • This job duty must include the exercise of discretion and independent judgment with respect to matters of significance

Learned Professional Exemption

Here are the criteria that must be met for a salaried learned professional to be exempt from the FLSA’s overtime rules:

  • The employee must be compensated on a salary basis at a rate not less than $684 per week
  • The employee’s primary job duty must be the performance of work that requires advanced knowledge; that is, work that is predominantly intellectual in character and requires the consistent exercise of discretion and judgment
  • The advanced knowledge must be in a field of science or learning
  • The advanced knowledge must be typically acquired by an extensive course of specialized intellectual instruction

Creative Professional Exemption

A salaried professional is not covered by the FLSA’s overtime requirements if these two criteria are met:

  • The employee must be compensated on a salary basis at a rate not less than $684 per week
  • The employee’s primary job duty must be work that requires invention, imagination, originality, or talent in a field of artistic or creative endeavor

Computer Employee Exemption

Computer employees who are paid a salary are exempt under the overtime regulations in these situations:

  • The employee must be compensated on a salary basis at a rate not less than $684 per week
  • The employee must be a computer systems analyst, computer programmer, software engineer, or another similarly skilled worker
  • The employee’s primary job duty must consist of at least one of the following:
    • The application of systems analysis techniques and procedures (including consulting with users) to determine hardware, software, or system functional specifications
    • The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs (including prototypes) based on and related to user or system design specifications
    • The design, documentation, testing, creation, or modification of computer programs related to machine operating systems; or
    • A combination of the above

What Are Highly Compensated Salaried Employees?

A highly compensated employee who is paid on a salary basis will be exempt from overtime pay requirements. These are individuals who perform office or non-manual work and who get paid total annual compensation of $107,432 or more, as long as that pay includes at least $684 per week paid on a salary or fee basis. Highly compensated employees must customarily and regularly perform at least one of the executive, administrative, or professional job duties mentioned above.

Blue-collar iron worker wearing dirty blue overalls and pushing a cart

Blue Collar Workers Must Be Paid Overtime

The previously described jobs are generally considered to be white-collar in nature. Blue-collar jobs, even if they are salaried positions, are not exempt from the FLSA’s overtime rules. These jobs are usually defined by manual labor and involve the use of repetitive operations of the hands, physical skill, and energy. Some examples are employees who work as:

  • Carpenters
  • Electricians
  • Mechanics
  • Plumbers
  • Ironworkers
  • Craftsmen
  • Operating engineers
  • Longshoremen
  • Construction workers and laborers
  • Welders
  • Heavy equipment operators

These workers are entitled to overtime under the FLSA, no matter how highly compensated they are.

How Salary Deductions May Affect You

Certain deductions may not be taken from a salaried employee’s pay in order for the employer to still claim the salaried employee exemption from overtime. An example would be a deduction because of the operating requirements of the business.

An employer cannot claim the overtime exemption if it has an “actual practice” of making improper deductions from an employee’s salary. Some criteria to be used in determining whether an employer has an actual practice of making improper deductions include (but are not limited to):

  • The number of improper deductions, especially in light of the number of employee infractions that warranted such deductions
  • The time period in which the employer made the improper deductions
  • The number and geographic location of both the employees whose salary was improperly reduced and the managers who were responsible for it
  • Whether the employer has a clearly communicated policy that allows or prohibits improper deductions

If it is determined that an “actual practice” of improper deductions exists, the exemption is lost during the time period of the deductions. Isolated or unintentional improper deductions will not result in loss of the exemption as long as the employer reimburses the employee.

If money has been deducted from your salary, it will therefore be critical how, why, and how often said deductions were made. You should consult with an experienced attorney to learn more.

Calculating Overtime Pay for Non-Exempt Salaried Workers

If a salaried employee is not exempt from the overtime rules (and therefore must be paid overtime), that worker’s regular rate of pay must first be calculated. This is done by dividing the employee’s weekly salary by the number of hours that the salary is meant to cover and then multiplying that amount by 1.5 (time and a half). Here’s an example:

A salaried employee who is entitled to overtime is paid a weekly salary of $700. This salary is meant to cover 40 hours of work each week.

Divide the $700 by 40 hours to calculate the regular rate of pay, which is $17.50. Next, multiply this regular rate of pay by 1.5 to determine the employee’s overtime rate. Here, it would be $26.25. Therefore, for any hours that the non-exempt salaried employee works over 40 during a week, that person would have to be paid $26.25/hour.

Let Us Review Your Salaried Overtime Situation

If you are unsure whether you are being paid enough to qualify as an exempt salaried worker or that the job duties you perform do not meet the FLSA’s exemptions, it is essential that you contact an experienced overtime attorney. The Lore Law Firm can review your situation. We can also help if you are not being paid the proper amount of overtime, since employers can often erroneously calculate the required rate.

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