Benefits and Compensation, HR Management & Compliance

Ask the Expert: ‘Extra’ Pay for Exempt Employees

Our IT department wants to be able to pay our IT staff for after-hours work or holiday pay other than comp time. These employees are exempt employees. We were wondering what other companies do in a case similar to ours?

Thank you for your question regarding wages for exempt employees.

Generally, exempt employees are not subject to the Fair Labor Standards Act (FLSA) requirement to pay overtime at time and a half of the regular rate of pay. Therefore, employers are not obligated to pay overtime to an exempt employee. However, an employer may do so without jeopardizing the exempt status.

The rule is that as long as the exempt employee is paid on a salary basis, the employer has met its FLSA compensation obligation. Compensating beyond the salary does not nullify the salary basis, as explained in 29 C.F.R. §541.604. Per that regulation, “Such additional compensation may be paid on any basis (e.g., flat sum, bonus payment, straight-time hourly amount, time and one-half or any other basis), and may include paid time off.” Therefore, you may pay an exempt employee “extra pay” for extra work without violating the requirements for the salary basis test.

Although this extra pay can be paid in any amount, some employers may wish to pay it hourly. To calculate an hourly rate, divide the annual salary by the number of hours to be worked in a year. Hours worked in a year can be figured, for example, by multiplying a 40-hour workweek by the number of weeks in operation each year (for example, 52) for 2,080 hours per year. Divide the annual salary—for example, $52,000—by 2,080 hours. If paying straight time, you would give the employee $25 per hour you wish to pay extra; time and a half would be $37.50 per hour.

It is acceptable to track the time of exempt employees for the purposes of performance, discipline and other organizational matters such as billing and extra pay. However, some employers feel the more they track an exempt employee’s hours, the greater the risk of improper pay deductions and the scrutiny of a Department of Labor (DOL) auditor on the classification in general.

For that reason, employers that want to reward the extra efforts of their exempt employees often allow time off or special consideration at bonus time instead of extra wages. Nevertheless, it is permissible to count the hours that an exempt employee works to compensate that employee over and above the salary basis.

We hope this information was helpful, and we thank you for your inquiry. We would like to remind you that does offer a forum where HR professionals can share information with and ask their peers questions. That site may be accessed by visiting As always, we recommend that you consult with qualified counsel familiar with the details of your specific situation.

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