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Did you know that not all salaried employees are exempt from overtime pay?
Some employees receive a fixed salary and qualify for overtime. These are called salaried non-exempt employees. Under the Fair Labor Standards Act (FLSA), this classification comes with certain rights and rules that impact both employers and workers. First, let’s define a few terms:
- A salaried employee is someone who is paid a fixed wage (or salary) each pay period, no matter how many hours they worked.
- A non-exempt employee is covered by the FLSA and is entitled to both minimum wage and overtime pay.
- A salaried non-exempt employee is someone who earns a predetermined wage or consistent salary but is still eligible for overtime pay if they work more than 40 hours a week. This classification is less common, but it’s important to understand so you pay everyone fairly and stay compliant.
Some examples of salaried non-exempt employees include:
- Farmers
- Paralegals
- Mechanics
- Movie theatre staff
- Live-in domestic workers
Exempt vs. Non-exempt Workers
So, how are non-exempt workers different from exempt employees? One of the most important distinctions is that you need to pay non-exempt employees at least minimum wage.
You can find more information on minimum wage rates in your state on the Labor Department’s website, or check out the map below. The US government also sets a federal minimum wage of $7.25 per hour; however, you’ll need to pay your employees the higher of the two rates.
In addition, you’ll need to pay your non-exempt workers overtime for any hours they work over the standard 40-hour workweek. This rate must be at least one and a half times their standard hourly wage. Exempt workers under the FLSA typically work in professional, administrative, executive, outside sales, or computer-based roles.
Common examples include:
- Teachers
- Engineers
- Computer programmers
- Doctors
- Lawyers
To qualify as exempt, your employees must earn at least $35,568 per year, or $684 per week.
What is a Fluctuating Workweek and How Does It Affect Overtime?
One of the most common reasons a worker may be classified as salaried non-exempt is if they work a fluctuating workweek (FWW).
Under this model, employees earn a fixed weekly salary, even though the number of hours worked varies from week to week. If they work more than 40 hours in a week, you must still pay them overtime, but at a reduced rate, based on their average hourly earnings that week. This means that the average hourly rate fluctuates depending on the total hours worked.
This setup works best in industries that have busy or seasonal periods, such as hospitality, events, or agriculture. For example, if you run a wedding venue, your team might work longer hours in the summer and fewer hours off-season.
To use the FWW model legally and ethically, consider:
- Hours must genuinely fluctuate from week to week.
- Employees must receive a guaranteed base salary, regardless of how many hours they work.
- Employees must earn overtime pay for any hours worked beyond 40 in a week.
- Employees must clearly understand the terms of the agreement. Meaning, they will earn the same base pay whether they work five or 39 hours in a week.
Since a 2020 amendment to the FLSA, employers can also offer bonuses, hazard pay, or other incentives to FWW employees. However, these payments can’t interfere with and don’t replace the base salary or overtime requirements.
Salaried Non-Exempt Employees vs. Hourly Employees
Rather than paying your workers a salary, you may choose to compensate them on an hourly basis. An hourly employee is paid for the actual number of hours they work, and their pay packet will often be different every week or month.
Salaried non-exempt workers, however, typically receive the same compensation for each pay period. This is typically their annual salary divided into 12 equal monthly payments. The exception to this is if the employee has worked overtime during the pay period. In this case, you will need to calculate their overtime and make an additional payment in their next wage packet.
How Often Are Salaried Non-Exempt Employees Paid?
Under the terms of the FLSA, you can pay your salaried non-exempt employees however often you choose. This could be on an hourly, weekly, or monthly basis. You can also pay your employees a piece rate, in which an employee receives a set sum for each unit or action performed. For instance, they may be paid for the number of vases they make or for picking a certain amount of fruit.
The only requirement is that your employees’ hourly pay must equate to at least the minimum wage.
The Pros and Cons of Salaried Non-Exempt Employees
Before you employ salaried non-exempt workers in your business, let’s look at some of the advantages and disadvantages.
Risks for employers
Since salaried non-exempt employees are relatively uncommon, employers may accidentally miscalculate wages or misclassify roles. This can lead to:
- Incorrect overtime pay, especially if hours fluctuate.
- Failure to meet minimum wage requirements.
- Fines of up to $1,000 per violation under FLSA for repeated or willful breaches.
- Legal action from employees or investigations from federal authorities.
Benefits for employees
- Guaranteed base pay in each pay period.
- Overtime pay for every hour worked over 40 hours a week.
- Reduced risk of working unpaid overtime, unlike exempt employees who aren’t entitled to extra compensation.
Potential drawbacks
- Salaried non-exempt employees may earn less than their exempt counterparts in similar roles.
- They may be seen as less senior or qualified based on their classification, rather than ability.
Conclusion
A salaried non-exempt employee earns a set wage but is still protected by FLSA rules on minimum wage and overtime. Misclassifying employees can lead to fines, lawsuits, and compliance issues. If you’re unsure about which category your employees fall into, consult a legal expert to protect both your business and your team.
