Are employees on a fixed salary always exempt form overtime pay? The answer is no—this article explains why as well as how to calculate overtime for a salaried employee when it's applicable.

Employers should be careful, because a salaried employee is not necessarily exempt from overtime pay simply by virtue of being on a fixed salary. All other exemption requirements must be met to actually allow employers to not pay overtime to a salaried employee. As such, employers may have a nonexempt, salaried employee who must have overtime pay calculations done every pay period.

Calculating overtime pay for nonexempt salaried employees

In general, if the employee’s salary is meant to cover pay for up to 40 hours worked in a workweek, then the calculation of the "regular rate" of pay for overtime purposes will involve dividing the annual salary by 52 (to get the weekly rate) and then by 40 (to get the effective hourly rate). If no other compensation was received during that pay period, this answer will be the regular rate of pay, which can then be multiplied by 1.5 to determine the overtime rate of pay.

Naturally, if the employee’s salary figure is stated in any terms other than annual, the calculation may vary, but the premise remains the same: regardless of how many times per month a salaried employee is actually paid – which is often less than weekly – the calculation of overtime will need to determine the weekly equivalent to get the effective hourly rate.

"Employers have gotten into trouble because they will use that salary payment as the basis for the overtime calculation and that’s a problem," Allen M. Kato noted in a recent BLR webinar. Don’t make the mistake of using the salary pay amount as the basis without first converting it to a weekly amount.

Employers also need to be aware that having an explicit written agreement for salary to pay for all hours worked – including overtime hours in excess of 40 hours in workweek – does not satisfy an employer’s overtime pay obligation. Overtime still needs to be paid if the employee is nonexempt.

Similarly, the idea of paying a salaried employee a lump sum paid for work performed during overtime hours – even if the lump sum exceeds how much the daily rate would normally be – does not meet an employer’s overtime pay obligations. Be especially careful, because doing this would then increase the employee’s regular rate (the lump sum would be considered part of the regular rate) and overtime would be due on top of the lump sum, and would be calculated on the higher effective hourly amount.

For more information on calculating overtime pay for non-exempt salaried employees, order the webinar recording of "Calculating Overtime: HR’s Pay Practice How-To for Federal Wage & Hour Law Compliance." To register for a future webinar, visit http://catalog.blr.com/audio.

Allen Kato is an attorney in the Employment Practices Group of Fenwick & West LLP in San Francisco. His practice concentrates exclusively on representing management in equal employment opportunity, wage and hour, wrongful termination, privacy, unfair competition, and trade secret matters, and litigating individual and class action lawsuits before courts and agencies.