Employees who are exempt from the Fair Labor Standards Act () need only be paid a proportionate amount of their full, weekly salary for their first and last weeks of work if they begin or terminate employment work midweek. A federal trial court has ruled that employers have a great deal of discretion when figuring this proportionate amount. (Kirchoff v. Wipro Technologies, Inc., No. C11-568 TSZ, D.C. W. Wash., 2012)
If x + 1 = y, is the employee underpaid?
A senior manager earned $140,000 a year and was paid semimonthly. He was hired on July 26, 2010, and terminated on Jan. 27, 2011. He sued, claiming that he was underpaid by $41.31 for his first week and by $73.43 for his last week.
Employee: To figure wages for those weeks, the employer must use the workweek method. How this works: Divide annual salary by 52 weeks; divide again by five working days; and multiply by the number of days worked in the pay period.
Here’s how the employee’s calculation works out for the first week of employment:
- $140,000 ÷ 52 = $2,692.31 (weekly rate)
- $2,692.31 ÷ 5 = $538.46 (daily rate)
- $538.46 × 5 (the number of actual working days in the pay period) = $2,692.31.
The employer, pointing out thatallow employers to pay an hourly or daily equivalent for those weeks, used a pay-period method to figure the proportionate share of the employee’s salary. How this works: Divide annual salary by 24 semimonthly pay periods; divide again by the number of working days in the pay period; and multiply by the number of days worked during the pay period.
Here’s how the employer’s calculation works out for the employee’s first week of work:
- $140,000 ÷ 24 = $5,833.33 (semimonthly rate)
- $5,833.33 ÷ 11 (for the pay period of July 16-31, 2010) = $530.30 (daily rate)
- $530.30 × 5 (number of actual working days in the pay period) = $2,652.
A federal trial court ruled in the employer’s favor. Court: By allowing employers to pay at a daily or hourly rate equivalent, FLSA regs clearly give employers the discretion to set pay for an exempt’s first and last week of work. The employee’s reliance on the workweek method is misplaced, the court continued, because that method applies for figuring overtime for salaried, not for figuring an exempt’s proportionate salary.
NEW MATH: Good communication, including examples, regarding how semimonthly pay periods affect nonexempt employees’ entitlement to overtime and exempts’ pay for the first and last weeks of employment will go a long way in smoothing relations with employees.