Non-exempt employees

Scope

The exempt classifications are exactly what they sound like – an exemption from the employer’s duty to pay overtime. Employers are not required to classify an employee as exempt, and where this is done, the company bears the burden of proving that the exemption was properly applied. There have been court cases of misclassified employees suing their employers for past overtime wages. Think of non-exempt employees as the “default” position – if an employee does not qualify as exempt, he or she must be non-exempt and is entitled to overtime.

Regulatory citations

• 29 CFR 778.111 — Pieceworker.
• 29 CFR 778.113 — Salaried employees — general.
• 29 CFR 778.114 — Fixed salary for fluctuating hours.

Key definitions

• None

Summary of requirements

Methods of payment. There are three common ways to pay a non-exempt employee: hourly, salary for a fixed number of hours, and salary for a fluctuating number of hours.

1. Hourly. Most non-exempt employees are hourly, and only get paid for hours actually worked, plus overtime. As noted, payment can also be made based on mileage, units produced, and so on. However, these are simply variations on the hourly rate. For instance, if an employee is paid for the number of units produced and works more than 40 hours a week, the company must divide the compensation earned by the number of hours worked to determine an hourly rate, then pay overtime based on that rate (see 778.111, Pieceworker).
2. Salary for a fixed number of hours. Second, a non-exempt employee could be paid a salary for a fixed number of hours. For example, the company might agree to pay a weekly salary of $500 for 40 hours. The term “salary” is a bit misleading because the employee is essentially treated as hourly. The hourly rate is determined by dividing the salary by the number of hours the salary is intended to cover. For example, $500 divided by 40 hours is $12.50 per hour. Under this agreement, the employee would get 1.5 times the hourly rate ($18.75) for overtime. If the employee works less than 40 hours, the weekly “salary” could be reduced (again, just like an hourly employee). As noted, the “salary” is simply another way of describing an hourly rate. This method is described in the overtime regulations at 778.113, Salaried employees -- general.
3. Salary for a fluctuating number of hours. Finally, a non-exempt employee could be paid a salary for a fluctuating number of hours. For example, the company and the employee might agree on a salary of $500 for a fluctuating number of hours. The employee would still get overtime (though it’s calculated differently) but would always get the minimum salary, even in shorter weeks. This method of payment is described in at 778.114, Fixed salary for fluctuating hours, which says that the employee must “receive such fixed amount as straight time pay for whatever hours he is called upon to work in a workweek, whether few or many.” Under this agreement, the company cannot reduce the salary based on the number of hours worked. The employee would be entitled to a full weekly salary, even if working less than 40 hours.

Calculating overtime. As noted, overtime is calculated a bit differently. Once again, the hourly rate is determined by dividing the salary by the number of hours worked. Suppose an employee works 50 hours. That number, divided into the $500 salary, works out to $10 per hour. (Note that the actual “hourly rate” may change each week, depending on the number of hours worked). The employee has already been paid “straight time” for all 50 hours, so the company would only need to add the “one-half” portion for overtime (which must be 1.5 times the hourly rate). So, one-half of $10 is $5, and that amount times 10 hours of overtime is $50, so the employee would be paid $550 for 50 hours of work.

The “balancing” factor is that, under the fluctuating method, the employee always gets the base salary ($500 in this example), even foronly working a few hours (or misses a day, or calls in sick – no deductions can be made for attendance because the law literally says “whether few or many” hours are worked).

Deductions from the salary. For exempt employees, a company can’t reduce the salary for a partial-day absence. However, it can require them to use vacation, sick leave, or other paid time off. These benefits are not required by law, so employers can establish policies on when the time can (or must) be used. The Wage & Hour Division addressed this in an Opinion Letter from 2005.

For non-exempt employees, the allowable deductions depend on the salary arrangement.

• If the employee is paid a salary for a fixed number of hours, where the salary is intended to cover a pre-determined number of hours, the employee is essentially treated as hourly. If the employee is absent for a partial day, the company could reduce the wages (just like an hourly employee).
• If the employee is paid a salary for a fluctuating number of hours, the employee must receive the agreed-upon salary “for whatever hours he is called upon to work in a workweek, whether few or many.” However, the company can still require these employees to use vacation, sick time, or other (paid time off) PTO for absences, whether a full day or partial day.
• Another Opinion Letter from 2005 notes that the allowable salary deductions for exempt employees do NOT apply to salaried non-exempt employees under the “fluctuating workweek” method. Although a company can require a salaried non-exempt to use paid time off for absences, it cannot make any salary deductions for attendance, even if the employee does not have any PTO time remaining. The regulation says that the arrangement covers any number of hours, “whether few or many” (though the company could still discipline the employee for failing to meet expectations).