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HR MATTERS E-TIPS
THIS WEEK’S E-TIP: Extra Compensation for Exempt Employees Q&A
Published by Personnel Policy Service, Inc.
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THIS WEEK’S E-TIP: Extra Compensation for Exempt Employees Q&A
Can you pay exempt employees additional compensation, above and
beyond their regular salary, without jeopardizing their exempt status?
Find out what the FLSA regulations say about extra pay for these
employees. |
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THIS WEEK’S E-TIP: Extra Compensation for Exempt Employees Q&A
Q: Can we pay our exempt employees additional compensation,
for
example, when they work more time than usual or complete a special
project?
A: As a general rule, you are not required to pay exempt
employees
extra for additional work since these employees are “exempt” from
the
overtime requirements of the Fair Labor Standards Act (FLSA). The
Act
exempts from its overtime provisions certain executive,
administrative,
professional, outside sales, computer-related, and
highly-compensated
employees who are “paid on a salary basis,” often referred to as the
“white-collar” exemptions.
The FLSA regulations define salary basis, in 29 C.F.R §541.602, as
the
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. Thus, you are not
required to pay exempt employees any more than their agreed upon
salary, even when they perform extra work.
However, many employers feel there is a legitimate need to provide
extra
pay to maintain good employee relations. For example, an exempt
employee may take on additional job duties to fill in temporarily
for a
coworker on leave or may work longer hours than usual to complete a
special project. In these cases, additional pay shows that you value
the
extra work and that you recognize that the employee is, in effect,
going
“above and beyond” the usual job requirements.
If you would like to provide exempt employees with additional
compensation above their stated salaries, the new exemption
regulations
specifically allow you to do so. The regulations, which took effect
on
August 23, 2004, clarify when you may pay an exempt employee
additional compensation without jeopardizing the exemption or
violating
the salary basis requirement in 29 C.F.R. §541.604.
Specifically, if the exempt employee is guaranteed a minimum weekly
payment of $455, he 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.
Note that this reference to extra payments calculated on an hourly
basis
is a new addition to the regulations. The old regulations also
allowed for
extra compensation in the form of commissions and bonuses, but did
not
address whether employers could pay exempt employees extra amounts
based on hours worked. The Department of Labor (DOL), in nonbinding
opinion letters, traditionally has allowed employers to pay
additional
compensation calculated on hours worked without affecting the exempt
status. It now appears the agency has formalized its position in the
new
regulations.
One final point – if you find that you are paying an exempt employee
extra compensation on a regular basis, you may need to reevaluate
that
employee’s pay. This pattern may mean that the employee’s job duties
have been increased for the long term, not just to complete one-time
projects. Thus, it may be time to consider giving the employee a
more
permanent raise. |
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A salary administration policy typically sets out the organization’s
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Subscribers to the
Personnel
Policy Manual and
HR Policy
Answers on
CD can find more information on extra compensation and exempt
employees in
Salary Administration, Chapter 301, note 11, and on the
salary basis test in Hours of Work, Chapter 207, note 32.
Not a subscriber? If you would like to order one of our policy
chapters,
go to: http://www.hrpolicyanswers.com.
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