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"Salaried, Non-Exempt:" When Hourly Rate is "Flexible"

First the important news: I am "micro-blogging" on Twitter. Follow my feed and see me struggle to limit my comments to 140 characters :-)

The question of "salaried, non-exempt" jobs came up again in my inbox (I have changed a few details to make the email not personally identifiable):

My classification was Salary Non-Exempt, and I am being told that I will not receive time and one half pay for these hours, such as a Non-Exempt employee would have, but only "Half Time" due to the Salary Non-Exempt classification.

Half Time is calculated by taking the weekly salary amount ($800.00) and dividing it by 40 hours in the work week; which equals $20.00 per hour. For any time worked over the 40 (example: 10 hours worked over 40 in a week for a total of 50 hours) and dividing it into the normal salary amount of $800.00, giving $16.00 per hour, then dividing the $16.00 by half resulting in $8.00 per hour for any hour worked over 40, or "Half Time" versus the traditional time and one half, in this example $30.00/hour for time and one half.

Is this accurate? Legal? Do I have any recourse? I answered the phone and supervised no one, swept the floors and cleaned the toilets. Is Salary Non-Exempt even accurate and should I consider a separate complaint to correct it to Non-Exempt?

When I first read this, I thought paying only $8/hour for overtime had to be illegal under federal Fair Labor Standards Act (FLSA) regulations.

However, I was wrong: the above pay is legal under federal law. In this post, as previously promised, I will address how salary, non-exempt, pay works.

Wondering if you should be earning $20/hour for answering phones and cleaning toilets? Use the PayScale Salary Calculator to find out.

I am still not a lawyer

I am still not a lawyer, and this post is not legal advice. State laws are often much more stringent than federal law on pay practices. If you are an employer thinking of using the "salary, non-exempt" trick to save money, consult a labor lawyer.

See the previous posts for caveats and sources. See even earlier posts for the difference between exempt (hourly) and non-exempt (salaried) workers under Federal law, in particular the Fair Labor Standards Act (FLSA).

See a post from two years ago, when I first addressed "salary, non-exempt" jobs. How naive I was.

The Key Trick: The Hourly Wage Is Flexible

"Non-exempt" means that FLSA applies to the position. The key provisions of that law for this case are:

  • Employees have to be paid at least minimum wage for every hour worked
  • If an employee works more than 40 hours in a week, pay for every hour over 40 must be at "time and a half" the employee's "regular rate"

The regulations make no statement about when the "regular rate" is set. In fact, for non-exempt workers, it can change every week. As long as the "regular rate" in any week does not drop below the federal minimum wage, it can have any value.

This is the trick with "salaried, non-exempt" pay: A worker only knows her hourly wage at the end of the week when she works overtime.

Let's look at the case above:

  • In a particular week, the employee works 50 hours
  • The regular pay for this week is $800
  • Assuming no other pay, the feds say the "regular rate" of pay is $16/hour (800/50) for that week
  • Since the workweek exceeded 40 hours, the excess time must be paid 1 1/2 times the "regular rate" for that week
  • So for 10 hours, the worker gets an additional $8/hour, or $80 total for the week, for overtime.

With Salaried, non-exempt, jobs, as long as the "regular rate" does not go below minimum wage, all is legal under FLSA.

The net result is that, the more overtime a worker works, the less the worker costs per hour. Even with overtime, the employee was only paid $880 for 50 hours of work, or $17.60/hour.

By working 10 hours overtime, the salary, non-exempt worker gets a 12% per hour pay cut!

This does seem like a bad deal for the employee, but is clearly a good one for the employer.

If I had 5 salaried, non-exempt employees, working 40 hours a week for $800/week, I would fire one and make the other 4 work 50 hours a week. This would save me $800/week for the 5th employee, at the cost of paying 4x$80 = $320 per week in "overtime" for the other four.

Note that, if there is not enough work, "salaried, non-exempt" workers can be sent home, and have their wages docked, e.g., at $20/hour, for hours not worked.

"Salaried" in "salaried, non-exempt" just means no agreement between the employer and employee up front on the hourly wage. It does not mean an "exempt" position, with the FLSA requirements of no fixed hours for a work week, and no ability to dock pay for lack of work when the exempt employee is available to work.

What if the Hourly Wage is Fixed?

It is wise for employees not to agree to a "salaried, non-exempt" contract. Even if the job does not usually require overtime, it is better to have the agreement be "hourly, non-exempt".

The difference is you agree with your employer on the "regular rate" hourly wage up front, rather than having it fluctuate from week to week.

How much more money is this worth? In the case above, an "hourly, exempt" job at $20/hour would pay $800 in a normal week, the same as the "salary, non-exempt" position.

However, if 10 hours of overtime are needed, then the pay is $30/hour for the extra hours, since the "regular rate" was set, by agreement, at $20 per hour.

Hence the 50 hour week means

  • $300 extra in pay, instead of $80
  • total weekly earnings of $1100, instead of $880
  • an average hourly wage of $22/hour, instead of $17.60

It also has the desired effect of the federal overtime law: employees only have to work 40 hours a week. Because the hourly wage is higher with overtime, employers will tend to favor hiring more workers, rather than working existing workers longer hours.

With or without overtime, are you being paid what your worth? When you want powerful salary data and comparisons customized for your exact position or job offer, be sure to build a complete profile by taking PayScale's full salary survey.

Cheers,

Al Lee

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