Q: We have several employees who have expressed interest in working second jobs in our organization to help out during the busy holiday season so they can earn extra compensation. How will this extra work affect their pay and will it affect nonexempt and exempt employees differently?
A: Generally, you can allow both exempt and nonexempt employees to work second jobs for extra compensation. But, you may have to pay overtime to the nonexempt employees and should watch how much time exempt employees spend on nonexempt duties to ensure their exempt status is not affected.
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Regarding nonexempt employees, if the employees work more than 40 hours in a single workweek performing two different jobs for your organization, they should be paid overtime for those hours over 40. Calculating the overtime can be a little tricky when an employee works two or more jobs for which the employee is paid different hourly rates since overtime must be based on the employee's "regular rate of pay." Typically, according to the FLSA regulations found at 29 C.F.R. §778.115, the employee's regular rate of pay when he works two jobs is calculated as the weighted average of the different rates.
For example, the regular rate of an employee who works 35 hours per week at $15 per hour as a machine operator ($525), and works 10 hours that same week at $8 per hour cutting the grass outside the plant ($80), is $605 divided by 45 hours or $13.44 per hour. The overtime premium owed the employee is an additional $6.72 ($13.44 divided by 2) for each hour over 40, regardless of which job the employee performs during the extra hours. (The employee in the example has already been paid straight time for the first 5 overtime hours up to 40 and is only entitled to the additional "half" of the time and one-half of overtime pay on the balance over 40.) Accordingly, the employee would be paid an additional $33.60 in overtime ($6.72 times 5 hours), so that the employee's total pay for the week would be $638.60 ($605 straight time pay plus $33.60 overtime premium). The employee's regular and overtime rates may vary from week to week with the number of hours spent performing each job.
Alternatively, as explained in the FLSA regulations at 29 C.F.R. §778.419(a), an employer and employee may agree, before the work is performed, that the overtime rate will be based on the regular rate that applies to the type of work performed during the hours in excess of forty. Therefore, if an employee spends 35 hours in a week working as a machine operator at $15 per hour, and five hours a week cutting the grass at $8 per hour, the overtime rate for any additional hours spent cutting the grass is $12.00 per hour ($8 times 1.5). Conversely, the overtime rate for any additional hours spent working as a machine operator is $22.50 ($15 times 1.5). This method of computation is available for hourly employees only and does not apply to nonexempt salaried employees.
Exempt employees do not have to be paid overtime for additional work hours, but when you provide exempt employees with extra compensation for performing additional job duties, two questions arise: (1) whether the exempt employee would be performing more nonexempt work than is consistent with her exempt status; and (2) whether she can still be considered paid on a “salary basis” under the FLSA if you pay her additional hourly compensation.
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Regarding the first issue, the FLSA salary basis test for white-collar exemptions requires that most exempt employees be paid a salary of at least $455 per week and that their “primary duty” must consist of the performance of exempt work. The FLSA regulations, found in 29 C.F.R. §541.700(b), indicate that employees who normally spend more than 50% of their time performing exempt work will satisfy the primary duty requirement. However, time alone is not the sole test, and employees who spend less than 50% of their time on exempt duties still may meet the primary duty standard if the other factors support the exemption.
Although these regulations focus on nonexempt work related to the exempt employee’s regular job, the same analysis can be applied when the employee works in a second, unrelated job. Thus, as long as the exempt employee devotes over 50% of all of her working time to exempt job duties she should continue to meet that exemption criterion.
The second issue raises the question of whether extra compensation paid in addition to the exempt employee’s salary will jeopardize the exempt status. The FLSA regulations define “salary basis” as payment on a weekly or less frequent basis of a predetermined amount constituting all or part of compensation, without reductions for variations in the quality or quantity of the work performed.
The regulations specifically allow employers to provide exempt employees extra compensation without jeopardizing the exemption or violating the salary basis requirement. According to the regulations, found in 29 C.F.R. §541.604(a), if the exempt employee is guaranteed a minimum weekly payment of at least $455, she also may be paid a commission on sales or a percentage of profits or sales, or even additional compensation based on hours worked beyond the normal workweek. This additional compensation can be paid on any basis, including a flat sum, bonus payment, straight-time hourly amount, time and one-half, or any other basis, including paid time-off.
Robin Thomas, J.D.
Personnel Policy Service, Inc.
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