Who won this case? She claims variable salary means she gets OT
December 8, 2008 by Sam NarisiPosted in: FLSA, In this week's e-newsletter, Latest News & Views, Overtime
HR has a lot of questions about the FLSA’s overtime exemption rules. For example: How often can companies change someone’s pay rate while still meeting the “salary basis” test?
Read the facts of this real-life case and decide: Who won?
The facts:
The employee worked as a mortgage underwriter. Under the company’s payment system, underwriters were paid a salary of at least $48,000 a year and classified as exempt. They had quarterly reviews, and their salaries could go up or down, depending on how many loans the employee had processed — but the pay could never fall below the $48,000 floor. The employee sued for unpaid overtime, claiming the wage policy failed to meet the salary basis test required for OT exemption.
The employer said:
The employees were guaranteed a salary that complied with the FLSA’s exemption rules. Wages could go up or down based on performance, but employees always made at least $48,000.
Who won the case?
Answer: The employer.
Why: Most of the OT exemption rules require that employees are paid based on a predetermined salary and that their pay isn’t reduced based on quality or quantity of work.
However, the FLSA also makes an allowance for employees who receive a “minimum guarantee plus extras” — for example, a salaried employee can still receive variable bonuses or commissions and be considered exempt.
In this case, the $48,000 was the guaranteed minimum, and anything beyond that was an “extra.” The court ruled the payment practice met the salary basis test, and the employee’s case was thrown out.
Cite: Havey v. Homebound Mortgage, Inc.
Tags: FLSA, overtime, performance incentives, variable salary
December 11th, 2008 at 1:35 pm
We have “dual-rate” positions which include a basic non-exempt employee who, on irregular times, is put into a supervisory role. Do these hours combine for overtime calculation even though we identify when the employee worked as a supervisor?
December 18th, 2008 at 4:35 pm
Kanie – the DOL/Wage & Hour looks at the employee’s duties in their totality to determine if the position should be exempt or not. Since you said the employee’s primary duties are non-exempt, the time spent performing the supervisory duties would be considered hours worked for overtime purposes.
If you pay a different rate when the employee performs the supervisory duties, that also needs to be included in the “regular rate of pay” to calculating time and half for overtime compensation. For example,
1. The employee earns $10 per hour for his/her regular duties and worked 37 hours on these duties during the work week
= $474
2. The employee earns $13 per hour for his/her supervisory duties and worked 8 hours in this role during the work week
3. Total Regular Straight Time Earnings = ($10 x 37) + ($13 x
4. “Regular Rate of Pay” = $474 divided by 45 hours worked during the week = $10.53 per hour
5. Since we’ve already calculated the straight time earnings in step 3 above, we need to calculate the additional 1/2 time owed for the 5 hours of overtime. 1/2 of $10.53 = $5.27 per hour
6. $5.27 x 5 = $26.35
7. Total earnings for the week = $474 straight time + $26.35 additional half-time = $500.35
This information is based on federal FLSA. You should also review your state’s wage & hour laws to ensure compliance with both. Remember that whichever one provides the employee with the greatest benefit is the one with which you must comply. We’re lucky in Ohio that our definitions for exempt positions mirror the federal.