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Are There Other Salary Alternatives?*


by Robert W. Ditmer, CPP*

Salaries for Fixed Overtime Hours

Some employers have attempted to simplify payroll for employees who work a fixed workweek of more than 40 hours by paying them a salary that includes payment for the overtime at a rate of one and half times the regular rate of pay. For instance, if an employee works 45 hours every week and his compensation is based on an hourly rate of $10 per hour, why not just pay him a salary of $475 (40 hr x $10/hr plus 5 hr x $15/hr)? Seems reasonable, doesn’t it?

Well, the FLSA has no provision for such a compensation arrangement. To the Department of Labor the above pay is 40 hours at the regular rate of pay and 5 hours at time and a half. And the employee’s pay stub must reflect that fact. There cannot be any agreement that the employee is being paid a salary. The employee may consistently be paid the same amount each week because his overtime is consistent, but if the employee works more than the regular number of hours, then additional overtime is due. And if the employee takes vacation or sick leave, which are not hours worked, then no overtime is actually due.

Salaries Reduce Costs

So employers can definitely reduce costs under certain circumstances by paying non-exempt employees a salary. Although in many cases employees cannot be paid a salary and must be paid an hourly wage, we have examined three types of salary arrangements that can benefit the employer.

  • Salaries for employees who work a fixed number of hours each week of 40 hours or less.
  • The Fluctuating Workweek method for employees whose hours fluctuate and may normally work overtime.
  • Salaries under a Belo Plan.
If employers are careful about conforming to the restrictions under each of these salary arrangements, they may be used to effectively cut administrative costs and, in some cases, even reduce payroll costs.

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