By: Bruce Luchansky

            Even smart employers make mistakes.  And in the world of employment law, there is one mistake that employers make more than any other.

            “I’m tired of paying my employee overtime.  I’m putting him on salary.  Then I won’t have to pay him overtime.”

            Employers often mistakenly believe that an employee – any employee – who receives a salary is exempt from overtime.  True, paying employees a salary is one of the requirements for exempt status.  But it is not the only one.  In addition to a salary, the law also requires that the employee’s duties fall within a recognized category of (typically) high-level jobs – such as a manager, an administrator, or a professional.  File clerks, maintenance technicians, and leasing agents all perform very valuable services for their companies.  But even if a company were to pay these employees (and others like them who are not managers, administrators, or professionals) a salary, the employees still would be “nonexempt,” and the employer would have to pay them time and a half for all hours they work above 40 in a workweek.

            This single piece of information is a powerful tool that companies can – and should – use to protect themselves from unexpected overtime claims.  With this piece of information, employers that have salaried employees should take two actions immediately.

            First, every company must carefully consider each of its salaried employees and make an informed decision whether the employee’s duties qualify the employee to be exempt from overtime under applicable laws.  This determination is obvious sometimes (a salaried CEO is exempt), but other times, it is not. (For example, project managers often are found to be exempt, and often they are found not to be exempt, depending on the specific project manager’s actual duties).  This undertaking is where your employment attorney’s assistance can be extraordinarily valuable.

            Second, once a company identifies a salaried employee as someone to whom overtime must be paid, the company should consider whether the employee will be working a fixed schedule or a fluctuating schedule.  Paying overtime to a salaried employee on a fixed, 40 hour per week schedule is relatively straightforward: employees receive time and a half for each hour they work above 40 hours each week (after calculating their equivalent hourly rate).  By contrast, companies with employees whose schedules fluctuate from week to week may only have to pay these employees “half time” for all hours over 40 – thus, saving a substantial amount of overtime pay. 

            To be eligible for this special treatment, however, the employer and employee must agree that the employee’s salary compensates the employee for all hours he or she works (not just for a specific number of hours per week).  To avoid future disputes, the best way to do this, of course, is in writing.  And the best place to do this is in the employee’s offer letter or employment agreement. 

            When employers handle “fluctuating workweek” compensation properly, the cost savings is substantial.  Under a fluctuating workweek agreement, the employee’s regular salary already constitutes full “straight time” pay for all hours worked.  Therefore, the company only must pay the employee the “half time” premium for all hours worked over 40 per week. 

            Navigating the labyrinth of wage and hours laws is one of the many areas of employment law that Luchansky Law handles regularly.  Call me at Luchansky Law, 410.522.1020, or email me at lucky@luchanskylaw.com, and see how our firm can assist you with protecting your company, lowering your legal risk, and saving you money.