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‘Hybrid’ pay plan can kill exempt status

by on
in Human Resources

A full-time home health care nurse in Cleveland was required to complete at least 25 patient visits per week, for which she was paid on a per-visit fee basis. She also had to perform on-call services and attend regular staff meetings and training, for which she was paid hourly. She regularly worked about 60 hours a week but didn't get paid overtime.

Elwell eventually resigned and sued, alleging violations of the overtime provisions of the Fair Labor Standards Act (FLSA). At issue: Whether an employee paid on both a fee basis and an hourly basis is considered a professional employee exempt from the FLSA's overtime rules.

The court ruled for Elwell, saying the nurse was eligible for overtime pay. Its reasoning: Compensation plans aren't considered exempt "fee-basis" arrangements if they include any component that ties wages to hours worked.

Federal regulations characterize fee basis as an arrangement in which payments are made for a completed task, regardless of the time required for completion. Elwell was paid both ways. Such "hybrid plans," the court said, don't qualify as an exempt arrangement. (Elwell v. University Hospitals Home Care Services, No. 00-3061, 6th Cir., 2002)

Advice: Don't try to play both sides of the exemption fence. Courts will frown on hybrid plans that try to label an employee "exempt" for some duties and "nonexempt" for others. While your intentions may be good (trying to provide extra compensation for extra efforts), paying an hourly wage to an otherwise exempt employee could wipe out that worker's exempt status and open you up to big-time overtime back pay.

In situations like this, you could help preserve a worker's exempt status by revamping her compensation structure. For example, increase her per-visit fee and make the meetings and training a condition of employment.

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