Exempt Employees Performing Nonexempt Work Q&A

Q: We have an exempt employee (i.e., exempt from the minimum wage
and overtime provisions of the Fair Labor Standards Act (FLSA)) who
would like to work in our call center on the weekends doing nonexempt
work. Can we pay her on an hourly basis for the nonexempt work, in
addition to her regular salary, without affecting her exempt status?

A: As a general rule, an employee is considered to be exempt if she is
paid on a salary basis and her job duties meet the criteria for the
administrative, executive, or professional exemptions. Thus, your
questions raise two related issues: (1) whether the exempt employee
would be performing more nonexempt work than is consistent with her
exempt status; and (2) whether she can still be considered paid on a
"salary basis" under the FLSA if you pay her additional hourly
compensation.

Regarding the first issue, the FLSA salary basis test for white-collar
exemptions requires that most exempt employees be paid a salary of at
least $455 per week and that their "primary duty" must consist of the
performance of exempt work. (Download free report: "FLSA
Exemption Regulations: Understanding The Issues.")
The FLSA regulations, found in 29 C.F.R. §541.700(b), indicate that employees
who normally spend more than 50% of their time performing exempt
work will satisfy the primary duty requirement. However, time alone is
not the sole test, and employees who spend less than 50% of their time
on exempt duties still may meet the primary duty standard if the other
factors support the exemption.

Although these regulations focus on nonexempt work related to the
exempt employee's regular job, the same analysis can be applied when
the employee works in a second, unrelated job. Thus, as long as the
exempt employee devotes over 50% of all of her working time to exempt
job duties, including the time spent in the call center doing nonexempt
work, she should continue to meet that exemption criterion.

The second issue raises the question of whether extra compensation
paid in addition to the exempt employee's salary will jeopardize the
exempt status. The FLSA regulations define "salary basis" as payment
on a weekly or less frequent basis of a predetermined amount
constituting all or part of compensation, without reductions for variations
in the quality or quantity of the work performed.

The regulations specifically allow employers to provide exempt
employees extra compensation without jeopardizing the exemption or
violating the salary basis requirement. According to the regulations,
found in 29 C.F.R. §541.604(a), if the exempt employee is guaranteed a
minimum weekly payment of at least $455, she also may be paid a
commission on sales or a percentage of profits or sales, or even
additional compensation based on hours worked beyond the normal
workweek. This additional compensation can be paid on any basis,
including a flat sum, bonus payment, straight-time hourly amount, time
and one-half, or any other basis, including paid time-off.

Note that this reference to extra payments calculated on an hourly basis
was added to the regulations in August 2004. (Download free report: "FLSA
Exemption Regulations: Understanding The Issues.") The
old regulations also allowed for extra compensation in the form of
commissions and bonuses, but did not address whether employers could
pay exempt employees extra amounts based on hours worked. Some
courts, and the Department of Labor (DOL) in nonbinding opinion letters,
have traditionally allowed employers to pay additional compensation
calculated on hours worked without affecting the exempt status. The
DOL formalized this position in the 2004 revisions.

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