Salary ain’t the rule: Don’t just assume the overtime exemption applies

I hear the incredulity from clients constantly: “Overtime? We pay our employees a salary—they aren’t eligible for overtime.” I call it the salary assumption. Unofficially, it’s the most common misconception in employment law. And it’s an understandable mistake. If an employee is paid a salary, how could an hourly overtime rate apply? The Fair Labor Standards Act (FLSA) explains.

Exemption requirements under the FLSA

Enacted in the heyday of steam whistles, the FLSA requires everyone to earn an overtime premium of 1.5 times their regular-rate-of-pay for all hours worked over 40, unless otherwise exempt. For most industries, this involves satisfying a three-part test known as the “white collar” exemptions. Being paid a salary of at least $684 per week or $35,568 per year is only the first part of that test.

The employee must also be paid on a consistent “salary basis.” This means they receive a predetermined amount of compensation for each pay period, regardless of the quality or quantity of work performed. While an employee doesn’t need to be paid for weeks where no work was performed, they must be paid their predetermined salary even if they work fewer days than expected or agreed upon.