Here’s something to remember if you want to pay an employee a fixed weekly salary based on a regular schedule that includes overtime: When the employee does work a different schedule, you must make sure your system captures the deviation and adjusts the paycheck accordingly.
A fixed salary is fine if it’s based on regular pay for the first 40 hours and overtime pay for the remainder. However, any deviation in hours worked must be reflected in pay. Otherwise, paying just the fixed salary becomes an unlawful payment method because it doesn’t take into account actual hours worked.
Recent case: Juan worked as a nonexempt salesman for four years. After a disagreement, he quit and sued, alleging that the payment method his former employer had used violated the Fair Labor Standards Act.
Juan had been paid a fixed amount every week that was supposed to represent an hourly rate ($11 regular) and an overtime rate ($16.50). He argued this was an illegal arrangement.
But his former employer pointed out that on those occasions when Juan worked fewer hours than the 51 hours his salary was supposed to cover, he was paid less; and the lesser amount was based on his regular rate up to 40 hours.
The court dismissed Juan’s case, reasoning that as long as the employer actually did track deviations from the agreed-upon regular schedule, the fixed salary payment was legal because it represented actual payment of both a regular rate and overtime at the appropriate time-and-a-half rate. (Garcia v. U Pull It Auto, No. 16-10257, 5th Cir., 2016)
Final note: The idea of a fixed salary for an hourly employee’s compensation will likely become more common after Dec. 1, when new white-collartake effect. You can pay on a set schedule salary if you account for deviations in hours worked.