© 2024 Seyfarth Shaw LLP | www.seyfarth.com Classification Guidebook | 11 Determining Pay for Reclassified Employees A. Deciding How to Pay Reclassified Employees In reclassifying employees, an employer will need to decide how to pay the impacted employees, as well as whether any changes should be made to their duties. Below are few among many considerations an employer could take into account in this process. 1. How do you want to pay the employee? Though most non-exempt employees are paid an hourly rate, the FLSA does not require this. Non-exempt employees may be paid via a weekly salary, a day rate, a piece rate, or in a number of other ways. Note: Regardless of the basis on which the employee is paid, the FLSA requires that their earnings be converted into a “regular rate” of pay— which is an hourly rate calculated by dividing non-excludable compensation for the week by hours worked—upon which the overtime rate is based. Most amounts paid to an employee are non-excludable and must be included in the regular rate calculation. 2. If you decide to pay a reclassified employee a salary, how many hours should the salary cover? This question is important because there are three different ways to calculate overtime pay for salaried non-exempt employees: (i) time and one-half (i.e., 1.5x) for all overtime hours; (ii) half-time (i.e., 0.5x) for all overtime hours (commonly referred to as the “fluctuating workweek method”); and (ii) a hybrid of half-time for up to a preset amount of overtime hours and time and one-half for any hours beyond that. Which calculation applies depends on the number of hours the salary is intended to cover. Time and One-Half for All Overtime Hours: This method applies if the employee’s salary is intended to cover 40 hours per week, or some number less than 40. Note, however, that if the employer and employee agree that the salary covers some number of hours less than 40 per week, the employee will be owed additional straight-time pay for any additional hours worked up to 40. The following examples illustrate the distinction between a salary that covers 40 hours and one that covers less: If an employee receives an annual salary of $40,000 (i.e., $769.23/week) that covers 40 hours, and if she works 45 hours in a particular workweek, then her total compensation for the week would be $913.46, which is equal to her weekly salary (i.e., $769.23) plus her overtime pay (i.e., $769.23 40 hours = $19.23 regular rate x 1.5 = $28.845 overtime rate x 5 overtime hours = $144.23). If the employee’s salary instead covers 35 hours, then her total compensation for a week in which she works 45 hours would be $1,043.96, which is equal to her weekly salary (i.e., $769.23) plus straight-time pay for hours worked between the intended 35 and 40 (i.e., $769.23 35 hours = $21.978 regular rate x 5 additional straight-time hours = $109.89) and time and one-half pay for hours in excess of
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