Our VP of HR wants me to evaluate whether we should consider applying “salaried nonexempt” status to some of our nonexempt employees. I’m having trouble nailing down exactly why a company would choose to do this, and also, how it would work. I understand that the employees still get overtime, so what’s the point? — Robert, HR Manager in Loma Linda
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For this technical wage and hour question, we turned to Lloyd W. Aubry, Jr.
As far as using salaried nonexempt status in California, there probably isn’t much point except for the “psychic” aspect-the supposed prestige that attaches to a salaried position. Under California Labor Code Section 515(d), the regular pay rate for a salaried nonexempt position is calculated by dividing the weekly salary by 40 hours. The employer must keep track of all hours the employee worked so that if hours worked exceed 8 in a day or 40 in a week, overtime can be paid at 11/2 times that regular pay rate for those hours.
Because they are nonexempt, these employees are subject to the Industrial Welfare Commission Orders, which entitle them to meal periods and rest periods.
Moreover, under Section 7 of the Orders, the employer must keep records of the beginning and ending of each work period and also when the employee begins and ends his or her meal period. Under Labor Code Section 226.7, each time a meal period or rest period is missed, the employee is entitled to one hour’s pay at the regular rate of pay.
On the other hand, if the employee works outside of California and is subject only to federal law and/or a state law that mirrors federal law, a different rule applies. Federal law permits the “fluctuating work week” to be used. Under this concept, an employer pays the employee a guaranteed salary, plus half time for the hours worked over 40 in a given week.
For example, let’s say an employee is paid a guaranteed salary of $350 every week she does at least some work, regardless of how many hours she puts in. If she works 47 hours one week, the employer divides $350 by 47 hours to come up with an hourly rate of $7.45. Because the employee is owed time and one-half for all hours worked over 40, the employee is paid an additional $3.73 ($7.45 divided by two) for 7 hours of overtime work that week, for a total of $26 above and beyond her standard $350 salary.
Using the fluctuating work week system-which California law does not permit-means that the regular pay rate may vary or fluctuate each week. (It will be lower as more hours are worked.) The obvious effect of this device is to reduce the overall amount paid to the employee under federal law as compared to California law, assuming the same salaries are paid to employees inside and outside of California.
Lloyd W. Aubry, Jr., former California labor commissioner, is of counsel at the San Francisco office of law firm Morrison & Foerster.