Hiring and the Law — Determining Who Can Get Paid On A Salary

Devora L. Lindeman, Esq., Partner at Greenwald Doherty LLP, is providing us with insight and information regarding the hiring process. Ms. Lindeman is a management-side employment lawyer and has exclusively represented managers and companies in federal and state agencies and courts with regard to their labor and employment needs for many years.

Questions addressed to Ms. Lindeman may be addressed in this column.

Hiring and the Law
By Devora L. Lindeman, Esq.*

Question:  I’m hiring a new employee and want to pay her on a salary instead of hourly.  Is that OK?

Answer:  As with many legal questions, the answer is “maybe.”  That is especially the case if what you are really asking is whether you have to pay her for every hour she works, and overtime pay if she works over 40 hours in a work week, or whether you can just pay her a salary without regard to how many hours she works.  It’s a legal question as to whether an employee is entitled to overtime pay.  An employer cannot designate every employee as “salaried” and presume that the company does not need to pay overtime pay.

The way the law works in the U.S., and the way it works generally in the states that have their own overtime pay regulations, is that employers need to pay overtime wages (time-and-one-half their regular hourly rate) to employees who work over 40 hours in a work week, when their jobs fall in certain categories.  It is not how an employee is paid that alone determines whether he or she is entitled to overtime pay.  That entitlement is also based on the employee’s duties and responsibilities.  The way the law reads is that all employees are entitled to overtime pay if they work over 40 hours in a work week—unless the employee fits into one of the listed exemptions from the overtime pay regulations based on the employees’ duties and responsibilities.  Thus, whether the exemptions apply depends on what the employees do all day.

If an employee fits into one of the exemptions, he or she is considered “exempt” from the overtime pay requirements.  In that case, the exempt employee generally can be paid a consistent salary without regard to how many hours the employee works in a work week.   If an employee does not fall into one of the exemptions to the overtime pay regulations, that employee is “non-exempt” and must be paid overtime wages if he or she works overtime hours.  A “non-exempt” employee may be paid by the hour or paid a salary, but if that employee works over 40 hours in a work week the employee is still entitled by law to overtime pay.  It is the extremely rare organization that has no “non-exempt” employees.

Generally employees that are entitled to overtime pay are receptionists, secretaries, administrative clerks, data entry folk, bookkeepers, schedulers, dental assistants, paralegals, warehouse workers, mail room employees, benefits clerks, payroll clerks, stock clerks, cashiers, wait staff, janitors, safety inspectors, messengers, drivers, computer help-desk employees and other non-managers with limited discretion, just to name a few.

There’s often an analysis of a person’s position that needs to be done to determine whether the company has sufficient arguments that the job should be classified as an exempt position.  The main recognized exemptions from overtime pay are:

  1. Executives (those who are senior managers over recognized areas of an organization who supervise two or more full-time employees or 2 full-time-equivalents) who are responsible for the supplies, production, performance, budget etc. of their area; who delegate their work, do performance reviews, etc.
  2. Professionals (with advanced degrees like lawyers, doctors, CPAs, architects, etc.)
  3. Administrative employees – people who are senior employees working on an administrative area of the business (i.e. HR, Marketing, Finance, Legal, Compliance, etc.) who have independent discretion and judgment, who can bind the company, sign checks, direct policy, etc.  There’s another exemption for computer people who are programmers, software and systems designers, and who perform more sophisticated IT tasks, and an exemption for creative professionals (writers, directors, choreographers, etc.).

The above is just a quick overview and by no means discusses all of the factors to consider.

In addition, under federal law, in order for an employee to be considered to be exempt under the executive or administrative exemption, the employee must be paid a regular salary of at least $455.00/week, which amount cannot be lessened in any workweek in which the employee performs work except for some very specific situations. (Could you give an example or two here?) For example, a company cannot deduct amounts for loss or breakage from an employee’s salary, for days the employee is off to serve on jury duty, or for partial day absences for any reason.  A company could lessen the salary if the employee took a whole personal day off, however, or took a sick day beyond the number provided in a company sick-day policy.

So the bottom line is that I cannot tell from the information you provided whether the employee in question is entitled to overtime pay.  However, you are certainly permitted to pay her a salary instead of hourly (i.e. $600.00/week without regard to whether she works 35, 37 or 40 hours in the week).  The issue becomes—what are you required to do under the law if that individual works more than 40 hours in a workweek (which, by the way, is not the same thing as over 80 hours in two weeks)?

*Ms. Lindeman is a Partner at Greenwald Doherty LLP, a law firm that exclusively represents businesses in all aspects of labor and employment law.  These columns are intended to be general information regarding the topic discussed and are not to be considered legal advice regarding a specific situation. Contact a management-side employment attorney familiar with the law of your jurisdiction for specific advice.  Ms. Lindeman is admitted to practice law in NY and NJ and may be contacted at DL@greenwaldllp.com.  She is under no obligation to respond to reader inquiries personally, but may answer general employment law questions through this column.

© 2011 Greenwald Doherty.  May not be reprinted without permission.

As the law varies in each area, please check with an attorney to ensure you are applying these tips within the law.

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