Salaried Workers and Overtime Pay – What Employees Need to Know

“If you are paid a salary you are not entitled to receive overtime pay.” If you have heard this about salary and overtime from an employer, you are not alone. Despite the fact that the Fair Labor Standards Act (FLSA) has been law since 1938, this is one of the myths and misperceptions that have managed to survive for decades – causing multi-millions of dollars in overtime pay to be lost by workers each year. The truth about salary and overtime is: it’s just not that simple. Merely being paid a salary does not automatically mean that your job does not qualify for overtime pay. The following information about salary and employee overtime is an overview of what salaried employees should know about the law that determines whether they are exempt (meaning not entitled to overtime pay) or non-exempt (meaning legally entitled to overtime pay).

Exempt or Non-Exempt?

The first question that must be answered is whether your job should be classified as exempt or non-exempt from the overtime labor laws.  While there are a number of specific exemptions for various types of jobs, the most common require a two part inquiry:  1) Are you paid a salary of at least $455* per week? And 2) Do your job duties and responsibilities meet certain requirements?

* The Department of Labor under the Obama Administration increased this salary amount to $913 per week effective 12/1/2016; however, this increase was blocked by a court ruling. The Trump Administration is now reconsidering these changes and appears to favor a lower minimum salary amount. Please see this page for the latest updates.

In answering part one, the question is not only the amount but also the structure. Whether your weekly guaranteed salary is at least $455 is easy, whether you are actually being paid on a “salary basis” requires a bit of a closer look. The U.S. Department of Labor tells us that “[b]eing paid on a salary basis means an employee regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent, basis” and that the “predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work”. Although there are some exceptions, an exempt salary overtime employee must receive their full salary for any week in which they do any work, regardless of the number of days or hours worked, but do not need to be paid for any workweek in which they perform no work. For more information as to when an employer is allowed to make deductions from an exempt employee’s salary, see the fact sheet on salary overtime laws issued by the Department of Labor.

So long as you are guaranteed a minimum of $455 per week and no improper deductions are made from your pay, the salary basis test is likely met. The next step is to look at your job’s specific duties and responsibilities to see if the “duties test” is met. Only if both the salary test and the duties test are met can a job be properly classified as exempt from the overtime regulations under current salary overtime laws.

The job duties test varies based on the type of work being done.  For workers who are Supervisors, Manager and the like, the Executive Exemption may apply, and for those who actively participate in the operation of a business, the Administrative Exemption may apply.  There are other exemptions that apply to certain professional, computer and outside sales employees, as well as many industry specific exemptions that range from movie theater workers to seamen to maple sap workers.

Non-Exempt Salaried Employees

For those employees whose jobs fall into the non-exempt category, while they may be paid a salary, they must also be paid overtime for all hours worked over forty each workweek.  This is where many employers run afoul of the overtime laws regarding salary employee overtime.

Salaried but non-exempt workers are entitled to receive overtime pay at the rate of one and a half times their regular rate of pay. Calculating the regular rate on which overtime is based can be a bit tricky and is often misunderstood by employers and employees.

In a common method referred to as fixed salary for fluctuating hours (a/k/a “Chinese overtime”), the regular rate of an employee will vary from week to week. The regular rate is obtained for each week by dividing the salary by the number of hours worked in the week and cannot be less than the applicable minimum wage in any week. Since straight-time compensation has already been paid, the employee must receive additional overtime pay for each overtime hour worked in the week at not less than one-half this regular rate.

For example, if an employee is paid a salary of $1,000.00 per week on a fluctuating workweek basis and works 45 hours one week, their overtime pay for the week is calculated as follows:  $1,000/45 hours = $22.22 regular rate.  Since the salary covers all 45 hours worked at straight time, they are due half-time pay for the 5 hours worked over 40:  $22.22 / 2 = $11.11 x 5 hours = $55.56.

To use this method:
  • the employee must have a work schedule with fluctuating hours, i.e., not be on a fixed schedule,
  • and must be paid a fixed salary that is meant to be straight-time compensation for all hours worked in a workweek, whether the employee works less than or more than 40 hours per week.
  • With almost no exceptions, no reduction in the salary may be made for short workweeks.
  • In addition, the salary must be large enough to ensure that the regular rate will never drop below minimum wage.

Conclusion

The federal and state labor laws on overtime place the responsibility for properly classifying workers as either exempt or non-exempt solely on the employer. However, if workers are not informed and aware of their rights, they cannot take steps to effectively stop illegal pay practices that unjustly enrich their employer and unlawfully deny them the salary overtime pay they are entitled to. Particularly because of the relatively short time limits on claims to recover unpaid salary overtime wages, employees can’t afford to remain ignorant. Salaried employees have overtime rights in many cases.

There are many resources available to workers to help them understand their rights and determine if such are being violated. These resources include private wage and hour lawyers, state workforce commissions and the U.S. Department of Labor, to name a few.

If you have any doubt as to your overtime compensation rights or questions about wage laws, contact The Lore Law Firm for answers and a free confidential review of your concerns.

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