September 09, 2021

FLSA Text Benders – How Much Does It Take To Be Exempt?

Can an employee who earns more than $200,000 per year still be non-exempt and have the right to be paid overtime under the Fair Labor Standards Act (FLSA)? The 5th US Circuit Court of Appeals (covering LA, TX, MD) recently said, “Yep!” (That’s not a quote). How does that work?

In order for an employee to be properly classified as exempt from the overtime requirements of the Fair Labor Standards Act (FLSA), an employee must be paid a guaranteed minimum salary of at least $684/week on a salary basis and meet at least one of several duties tests. Let’s say you have a supervisor whom you guarantee a salary of at least $900/day, the equivalent of $234,000. How is it possible that employee would not meet the definition above?

The FLSA defines salary as compensation paid “on a weekly, or less frequent basis…without regard to the number of days or hours worked.” However, the court points out that paying an otherwise exempt employee on an hourly, daily or other basis of less than per week is permissible if two other conditions are met: (1) the employee is guaranteed at least the minimum weekly required amount of $684/week; and (2) there is a reasonable relationship between the guaranteed amount and the amount actually earned.

In this case, although the employee earned well in excess of $200,000/year, the employer did not guarantee any minimum weekly salary. The employer also did not demonstrate a reasonable-relationship between the amount they actually paid the employee in relation to his daily rate.

Lesson learned? Get it right the first time. The court reminds us, “employees are not to be deprived of the benefits of the [FLSA] simply because they are well paid.” Don’t assume just because an employee earns more than $107,432 per year (highly compensated employee), that the employee does not have to meet certain other provisions of the FLSA in order to be properly classified as exempt.

No Text Bending. While employers might not like the outcome, particularly those in the energy or other industries that regularly pay daily rates, the court stands firm, declaring they will not “bend the text to avoid perceived negative consequences for the business community. That is not because industry concerns are unimportant. It is because those concerns belong in the political branches, not the courts. “

It’s Called a Clue. The court also gives employers a hint. It suggests the employer in this case might have successfully argued the employee was properly classified as exempt and paid on a fee basis under the highly compensated executive exemption, rather than a salary basis. But the employer did not do so. Hmmmm. Next time, perhaps.

Want more FLSA tips? Refresher on the basics? Check out FiveL Company’s September webcast, “Wage and Hour Do’s and Don’ts. Click here for the program description or to register. $25 pp.