Employment Law Note: Combined Hourly Pay and Salary under the Fair Labor Standards Act

Combined Hourly Pay and Salary under the Fair Labor Standards Act

On occasion, employers have asked whether it is acceptable to pay a part-time non-exempt employee (for example, a marketing associate) an hourly rate and a salary for his or her work. As a starting point, it is important to note that the Fair Labor Standards Act (“FLSA”) does not differentiate between full-time and part-time employees. When the Department of Labor (“DOL”) is examining overtime pay practices, the exercise is essentially a function of number-of-hours and the “regular rate of pay” for an employee. It’s a matter of math, not labels.

The “regular rate of pay” of an employee is determined by dividing the total pay for employment (except for the statutory exclusions noted above) in any workweek by the total number of hours actually worked. See DOL Fact Sheet # 23. Consider the example of an employee who is paid a weekly salary of $600 plus and additional $8.00/hour for each hour worked. If this employee worked 42 hours in a given week, the “regular rate of pay” would be calculated by dividing the total pay for the week ($936) by the number of hours worked (42), yielding a “regular rate of pay” of $22.29/hour for that week.

Under the FLSA, an employer is allowed to pay an employee an hourly rate and salary, so long as the net effect of the wages in a given week complies with the overtime and minimum wage requirements. This combined approach can be administratively burdensome, since the employer will have to re-calculate the “regular rate of pay” for the employee on a weekly basis. The overtime rate for this employee will be based on the calculated “regular rate of pay” for a given week; the overtime rate cannot be based solely on the hourly or salary figure. Ultimately, the payment of an hourly rate and salary to an employee is permissible, so long as: (1) the regular rate of pay, when calculated weekly, exceeds the minimum wage; and (2) overtime is paid based on the regular rate of pay, as calculated weekly.

Under the example above, the employee would be entitled to the overtime premium (1.5 x “regular rate of pay”) for the two (2) hours worked in excess of forty (40) hours. This would yield an overtime premium rate of $33.44/hour for those two (2) hours.

Many employers determine that the administrative cost associated with combined compensation is too great, and they therefore choose only one method of compensation. However, there are certainly still instances where the combined approach makes practical and economic sense for the employer. It’s a balancing act and a business decision, but whatever decision is made, it is crucial to understand when and how to calculate the “regular rate of pay”.

George B. Ward and the attorneys at De Leon & Washburn, P.C. are available to assist clients with corporate matters. For more information regarding the firm’s practice areas, please visit our Practice Areas page, and please feel free to contact the attorneys at any time.

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