There are employees who occupy positions exempt from minimum wage requirements and overtime pay requirements. These requirements are determined by the Fair Labor Standards Act (FLSA), as are positions that can be classified as exempt.
You may even employ people in exempt positions within your own business. One thing that often comes up for employers who do have exempt employees is the issue of overtime pay. If an exempt employee works more hours than expected, you probably want to compensate them for their time. Since they’re classified as exempt, however, you may worry that doing so will cost the position its exemption.
What can you do? Is it okay to pay an exempt employee overtime?
The Short Answer
The quick and easy answer to this question is yes. You can absolutely provide additional compensation to an exempt employee without losing their exemption.
Of course, there are certain rules and regulations governing this practice. You can’t just pay an exempt employee overtime constantly.
How Does That Work?
Most non-exempt employees are paid hourly for their time, which is how they can accrue “overtime.” Depending on whether they’re full-time or part-time employees, they will have a maximum number of hours they can work per shift, per day, and per week. If you exceed the maximum number of hours, overtime is triggered.
Exempt employees, by contrast, aren’t paid by the hour. Instead, they’re paid a salary. Usually, the employer and the employee have an understanding of how much time an employee will work within a given period. Many salaried, exempt employees work a 40-hour work week, in five eight-hour shifts.
However, an exempt employee could certainly work longer hours or more time, especially if you have a time-sensitive project on the go. If this happens, you may want to provide the employee with additional compensation to show your appreciation. The FLSA doesn’t prevent you from doing that.
What Are the Rules?
As noted, you’ll need to play by certain rules to avoid losing the exemption if you do decide to pay an exempt employee an additional amount.
The first requirement is your arrangement with the employee must include a guarantee of a minimum weekly required amount paid on a salary basis.
As an example, you can imagine you have an employee who earns $2,000 on a weekly basis, paid out as salary. So long as the employee continues to receive this salaried pay, you can provide additional compensation for additional hours worked. You cannot dock their pay the next week if you provide additional compensation.
You can choose how to pay out any additional compensation for employees. You may decide to pay them a particular per-hour rate or time and a half. You can also give them a flat sum or a bonus payment for their hard work on the project.
Don’t forget additional time off can also be considered additional compensation. If your employee pulled an 80-hour workweek to get the project done on time, they may very well appreciate a few extra paid days off. Again, keep in mind you must keep paying the same base salary amount. For the employee earning $2,000 per week, you couldn’t give them additional time off and “take” the time out of their following pay.
Why Provide Additional Compensation?
The answer to this should be obvious. Non-exempt employees obviously have an incentive to work overtime hours since you’ll pay them, often at a higher rate than their normal wage. Exempt employees don’t have the same incentives. Why should they stay later or work longer just because a project is time-sensitive?
If an employee chooses to work later or longer, you want to show how much you appreciate their time and effort! Providing them with a little extra conveys this appreciation quite neatly. You can do this without worry. They’ll still have their exempt status.