Many business owners place employees on salary believing that by paying a fixed salary the business can avoid paying overtime. This is not correct. Simply paying an employee a salary does not make the employee exempt from overtime pay under the law.
As a general rule the Fair Labor Standards Act requires an employer to pay an employee one and a half times that employee’s hourly rate for every hour worked in excess of 40 hours in a week. There are exception to the rule requiring overtime pay. Some of these exceptions are found in exemptions established by the Fair Labor Standards Act. One of the legally recognized exemptions is the Executive Exemption.
The Executive Exemption to the overtime requirement applies to an executive employee who is paid on a salary basis. To qualify for the exemption the employee must receive his full salary in a predetermined amount for any week in which he performs any work. To be considered an executive who will come within the exemption, the employee must also meet certain other requirements. The first requirement is that his or her primary duty is managing the enterprise in which the employee is employed, or managing a customarily recognized department or subdivision of the enterprise. There are other requirements which must be met.
Typical management duties are interviewing, selecting and training employees; setting and adjusting employee’s rates of pay and hours of work; directing employee’s work; evaluating employees’ productivity and efficiency for the purpose of recommending promotions or other changes in status; and budget planning and control. These are only examples. It is not possible to provide a complete checklist because the determination of whether an employee’s primary duty is management is a fact specific one. That determination must be made in the context of all the duties handled by the employee. This article only touches the surface of the relevant considerations. A business attorney with knowledge of the FLSA can help understand the requirements of the law.
However, keep in mind that simply paying an employee a salary and calling him a manager does not make the employee exempt from overtime pay under the law. Whether an employee will be exempt may not always be clear. And there are other categories of employees exempted from overtime pay besides executives. Failure to comply with the law can result in litigation. Employees who successfully sue for unpaid overtime may be entitled to recover their attorney’s fees and other moneys in addition to unpaid overtime wages. If you have been sued for unpaid overtime or think you may be sued you may want to consult a business litigation lawyer.