The Interesting Problem of Salaried Non-Exempt Employees.

When I first started working, back in the “good old days” . . . Remember the “good old days”? Your grandparents and parents talked about the “good old days” all the time. Well, now I’m old and I talk about the “good old days” too. Only in my case the “good old days” were the 70’s and everyone knows there was nothing good about the 70’s. Disco, polyester, 27% interest rates. Bad old days, not good old days.

By the way, for you youngsters, if you want to see an excellent example of the 70s, disco and polyester jump on the internet and look for an image of the Bee Gees. Anyway, back in the 70’s when I got my first real job in a factory baking mushy white bread at a rate of 6,000 loafs per hour, I was under the impression that there were only two kinds of employees: hourly employees and salaried employees, and hourly employees got overtime and salaried employees did not. Of course, now that I’m older and wiser and I actually went to law school, I have learned that there is a big difference between a “salaried” employee and an “exempt” employee. And it is your exempt status that determines if you get overtime, not your salaried status.  In fact, you can have an employee who is “salaried” and who is still “non-exempt.”

So what is a salaried non-exempt employee? It is an employee that gets paid a salary but is still entitled to overtime. Wait a minute, how can that happen? Simple – to be exempt you have to be paid a salary AND pass a “duties test.” Have one but not the other, you get overtime. And, as you already know, there is a Regulation to determine exactly how that overtime is paid.

(a) Weekly salary. If the employee is employed solely on a weekly salary basis, the regular hourly rate of pay, on which time and a half must be paid, is computed by dividing the salary by the number of hours which the salary is intended to compensate. If an employee is hired at a salary of $350 and if it is understood that this salary is compensation for a regular workweek of 35 hours, the employee’s regular rate of pay is $350 divided by 35 hours, or $10 an hour, and when the employee works overtime the employee is entitled to receive $10 for each of the first 40 hours and $15 (one and one-half times $10) for each hour thereafter. If an employee is hired at a salary of $375 for a 40-hour week the regular rate is $9.38 an hour.

(b) Salary for periods other than workweek. Where the salary covers a period longer than a workweek, such as a month, it must be reduced to its workweek equivalent. A monthly salary is subject to translation to its equivalent weekly wage by multiplying by 12 (the number of months) and dividing by 52 (the number of weeks). A semimonthly salary is translated into its equivalent weekly wage by multiplying by 24 and dividing by 52. Once the weekly wage is arrived at, the regular hourly rate of pay will be calculated as indicated above. The regular rate of an employee who is paid a regular monthly salary of $1,560, or a regular semimonthly salary of $780 for 40 hours a week, is thus found to be $9 per hour. Under regulations of the Administrator, pursuant to the authority given to him in section 7(g)(3) of the Act, the parties may provide that the regular rates shall be determined by dividing the monthly salary by the number of working days in the month and then by the number of hours of the normal or regular workday. Of course, the resultant rate in such a case must not be less than the statutory minimum wage.

29 CFR § 778.113.

So the math here is really simple and we all already know, if we have been following along, that each workweek stands alone for overtime purposes, so that is no big surprise either. What I find interesting and what I’ll bet comes as a surprise to some of you is that the regular rate computation is based, not on a 40 hour week, but on the “number of hours which the salary is intended to compensate.”

So what does that mean and why do I find it interesting? It means that if, on the off chance you intend to hire a salaried non-exempt employee, you better be clear how many hours that salary is intended to cover. Put it in writing in an offer letter, and if the same policy applies to all salaried non-exempt employees, put it in the handbook too.

I know what you’re saying: “I want the salary to cover all the hours the employee works, no matter how many there are!” Don’t panic, we will talk about it next week.