While non-exempt employees usually are paid hourly, employers can also classify employees as salaried non-exempt. Employees sometimes like this method because it ensures they receive a set take-home pay each week, even if work is slow.
Calculating the Regular Rate of Pay
To pay a non-exempt employee a salary, the employer pays the employee the fixed amount per week and pays overtime at a rate of 1.5x the employee’s regular rate. The regular rate in this method is determined by dividing the salary by the number of hours the salary is intended to compensate.
The following is an example from the regulations:
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.
Using the Fixed Salary for a Fluctuating Workweek Method
The other option is to pay a non-exempt employee a Fixed Salary for a Fluctuating Workweek (FSFW). The FSFW method is a useful option when an employee’s hours change from week-to-week. Under this method, the employee and employer have an understanding that the employee is paid a fixed amount per week (i.e., salary) as straight time pay for however many hours the employee works in any given week, and the employee is paid overtime at a rate of one-half his regular rate for each particular week (“half-time” pay) instead of 1.5x his regular rate.
Even though the fixed salary is not based on the number of hours worked, you still use the number of hours worked each week to determine the overtime rate. Since the salary is intended to compensate the employee at straight-time rates for whatever hours are worked in the workweek, the employee’s regular rate will vary from week to week. Using this method, the more hours an employee works beyond 40 in a workweek, the less overtime compensation he or she receives.
This may be a useful option if your employees work different jobs each week, resulting in inconsistent hours. However, the calculations can be complicated. Furthermore, employees generally don’t prefer this method since they only receive half-time pay for overtime hours.
To meet the DOL’s requirements for the FSFW method, all of the following conditions must be satisfied:
- The employee must be paid a fixed salary.
- The employee’s hours must fluctuate from week-to-week.
- The fixed salary cannot amount to less than minimum wage for all hours worked.
- The employee must be paid overtime at a rate of 0.5x his regular rate, which is the weekly salary divided by the hours actually worked.
- The employee must understand that the employer’s intent is to pay them a consistent salary for each week, regardless of the number of hours worked, rather than per hour.
Let’s look at an FSFW example from the regulations for an employee paid a salary of $600 per week:
If during the course of 4 weeks this employee works 40, 37.5, 50, and 48 hours, the regular hourly rate of pay in each of these weeks is $15.00, $16.00, $12.00, and $12.50, respectively. Since the employee has already received straight-time compensation on a salary basis for all hours worked, only additional half-time pay is due. For the first week the employee is entitled to be paid $600; for the second week $600.00; for the third week $660 ($600 plus 10 hours at $6.00 or 40 hours at $12.00 plus 10 hours at $18.00); for the fourth week $650 ($600 plus 8 hours at $6.25, or 40 hours at $12.50 plus 8 hours at $18.75).
To take advantage of the FSFW compensation method, the employee must truly work fluctuating hours each week (with occasional weeks going below 40 hours) and the lowest fixed weekly salary he can be paid is $290/week (minimum wage or $7.25 x 40).
The DOL has proposed updates to the FSFW method, which, if enacted, should reduce confusion for employers and clarify whether employers would have to factor certain bonuses into FSFW pay.
Quick Tips for Paying Non-Exempt Employees a Salary
- An employer must still track an employee’s hours, even if the employee is paid a salary or working a fluctuating workweek.
- Put in place an agreement or understanding, in writing, especially when using the fluctuating workweek method.
- Issuing bonuses, commissions, or other ancillary compensation may affect these rules!
- Note that not all states permit the use of the fluctuating workweek method.
- Contact the Labor & Employment team for help!
Also, for those who have been following – it was Leah’s New Year’s Resolution to issue an e-alert each month this year on the FLSA! 2019…Conquered! Who is ready to conquer 2020?
Happy New Year!