Exempt Employees: Court Approves Hourly Overtime For Salaried Workers; What The New Rules Mean To You

Under federal law, employees who are exempt from the overtime rules must usually be paid a fixed salary regardless of the number of hours they work. But suppose an exempt employee does extra work and you want to compensate them for it? Many legal experts had believed that additional pay would jeopardize an employee’s exempt status because it would look like the person was being treated as an hourly worker. But a new court ruling clears the way to give salaried employees extra hourly pay for extra work, without making them non-exempt.

Exempt Workers Paid For Overtime

The case involved a group of exempt engineers and managers who worked for Boeing in Seattle. Boeing’s policy provided that if these employees had to work up to eight hours of unplanned overtime a week, they wouldn’t receive any extra pay. However, they would be paid a “premium rate” of straight time plus $6.50 per hour for all overtime after that.

The employees sued Boeing. They claimed that by paying them this extra compensation, the company had treated them as if they were hourly workers, and therefore they were no longer exempt. The workers demanded time and a half for all overtime hours they worked. But the federal Ninth Circuit Court of Appeal, which covers California, ruled that when Boeing provided additional pay for extra hours worked, it did not violate the requirement that exempt employees be paid a fixed salary.

The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.

Only Deductions Prohibited

The Court ruled that the federal Fair Labor Standards Act prohibits employers only from reducing a salaried employee’s pay based on the number of hours worked in a week. But nothing in the law prevents you from offering your exempt workers additional pay for overtime.

In its decision, the court rejected language in an earlier case suggesting that hourly pay for extra work would undermine an employee’s exempt status.6 Because of this new ruling, you now have more flexibility in deciding how to reward exempt employees who put in extra time-without risking liability for all overtime they work.

Note that if you decide to pay more than someone’s base salary, and compute it on an hourly basis rather than a bonus or flat amount, you don’t have to pay time and a half. Because the added compensation is completely voluntary, you can pay whatever you feel is appropriate.