It’s Beginning to Look a lot Like. . .a Potential Compensation Issue – Compensating Employees who Perform Exempt and Non-Exempt Work

By Robert J. Hingula

With the gift-giving season upon us, many employees are looking for opportunities to work extra hours to earn more money. This raises questions regarding the proper treatment, classification, and compensation of employees performing both non-exempt and exempt work, as well as how to treat non-exempt employees working jobs at different rates of pay for the same employer.  

How to Properly Classify Employees

Pursuant to FLSA regulations, an employee cannot hold multiple statuses: he or she is classified as either exempt for all purposes or non-exempt for all purposes. The employer must determine whether exempt duties or non-exempt duties constitute the employee’s “primary duty.” “Primary duty” is defined by the FLSA as “the principle, main, major or most important duty that the employee performs.” Determining an employee’s primary duty is accomplished by considering all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.

Because an employee can only hold one status, a non-exempt employee (i.e., whose primary duty is performing non-exempt work) still will be considered non-exempt under the FLSA when performing exempt duties. Similarly, an employee whose primary duty is exempt will still be exempt even when performing non-exempt duties. The percentage of time spent performing either exempt or non-exempt duties is important, but does not necessarily determine exempt status under federal law. While the FLSA provides that employees who spend more than 50% of their time performing exempt duties will generally be exempt, there is no regulation requiring that employees spend more than 50% of their time performing exempt duties. Keep in mind, however, that some state laws impose a requirement that an employee perform exempt duties for a particular percentage of time to qualify for an exemption.

Determining Lawful Compensation

Generally, if an employee is an exempt employee working more than 40 hours in a week, he or she is exempt from overtime and is not entitled to additional compensation. But, FLSA regulations state that an employer may provide exempt employees with additional compensation without losing the exemption or violating the salary basis requirement under certain circumstances. For example, if an exempt employee has a salary of $1,000.00 per week, but an employer agrees to pay the employee $25.00 per hour any time the exempt employee works over 50 hours in a work week, the employee is not automatically converted to non-exempt. This assumes that the employee’s duties meet an FLSA exemption and that the employee is paid the $1,000.00 on a true salary basis.

If a non-exempt employee works extra shifts at their same rate of pay and the employee works over 40 hours in a work-week, the calculation of overtime is required – the employee is paid time and a half their hourly rate for time over 40 hours. 

But what happens if a non-exempt employee picks up an extra shift for the same employer, and that shift pays a different rate of pay than the employee’s normal hourly rate? The FLSA provides multiple solutions. The employer can calculate a modified regular rate to which overtime is calculated. For example:

If Employee works 40 hours a week at his normal job at $10/hr, and works 20 hours in the same week in an extra shift for a job that week at $7.50/hr, The Employee’s pay would be calculated as follows:

  • ($10 x 40 hrs) + ($7.50 x 20 hrs) = $400 + $150 = $550

  • $550/60 hrs = $9.17 (this is the new regular rate)

  • Employee worked 60 hours total, so has 20 hours of overtime. ($9.17 x 20)/2 = $91.70

  • $91.70 (overtime pay) + $550 (pay at Employee’s regular hourly rate) = $641.70

  • So Employee’s paycheck for that week is $641.70

Alternatively, where an employee performs two or more different kinds of non-exempt work for which different straight time hourly rates are established, the employee may agree with their employer in advance that she or he will be paid during overtime hours at a rate not less than one and one-half times the regular rate established for the type of work she or he is performing during such overtime hours. In other words, the employee may agree with their employer in advance that any overtime the employee works will be paid at the applicable overtime rate for the job performed.   

It is imperative to properly classify employees to ensure they are compensated properly for all time worked. Of course, it is recommended to engage qualified wage and hour counsel to help you identify your employees’ “primary duties” so you can compensate them appropriately.