Thomas Cash was hired for a newly created “new purchase/customer
service relations manager” position at Boston Harley, a motorcycle shop in
treated as exempt. Boston Harley paid Cash $1,153.85 per week, which was the
prorated amount for his $60,000 annual salary. He received this amount each week
regardless of how many hours he worked, except during two pay periods in which
he was paid $769.24 and $961.55 for working partial weeks.
Cash worked at Boston Harley for about a year, receiving a total
of 50 paychecks. He was terminated after having an emotional problem at work.
Former Employee Sues for Overtime
Cash sued, contending that Boston Harley violated the federal Fair
Labor Standards Act (FLSA) by not paying him overtime. He argued that even
though he was classified as an exempt administrator, the two short paychecks indicated
that he was not paid on a “salary basis” as the FLSA requires for exemption.
Therefore, he claimed, he was entitled to back wages for the many overtime
hours he worked during his year at the shop.
Paying Overtime: 10 Key Exemption Concepts
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Salary Basis Satisfied
A federal appeals court, however, ruled in the company’s favor.1 The court explained that to
qualify for white-collar exemptions under the FLSA, an employee must be
compensated on a salary basis of not less than $455 per week. The employee must
meet special duties tests as well.
FLSA regulations state that an employee will be considered to be
paid on a salary basis provided he or she receives a predetermined amount each
pay period and that amount isn’t subject to reduction because of variations in
the quality or quantity of work the employee performs. In a nutshell, the
employee must receive his or her full salary for any week in which the employee
performs work, regardless of the number of days or hours worked. The exemption
can be lost, however, if the employer has an “actual practice of making improper
deductions,” which would demonstrate that the employer didn’t intend to pay the
employee on a salary basis.
The court went on to find that two paychecks that deviated from
the norm out of the 50 Cash received from Boston Harley didn’t establish an
actual practice of improper deductions. A few random deductions, the court
said, didn’t demonstrate that the employer intended to treat an otherwise
exempt employee as hourly.
5
Watch Your Pay Practices
Although the employer prevailed in this case because the employee
could point to just two instances of improper deductions out of 50 paychecks,
it’s important to keep an eye on your pay practices to ensure that you’re
paying exempt employees on a salary basis. Note that
exempt employees than the FLSA does. The state minimum salary is pegged to an
amount equal to two times the state minimum wage (currently $8.00 per hour), or
$2,773.33 per month.
You can read the new case at www.ca1.uscourts.gov/cgi-bin/getopn.pl?OPINION=07-1768.01A.
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1 Cash v. Cycle Craft Co., Inc., U.S.C.A. 1st Cir. No. 07-1768,
2007