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Pay regular salary to preserve exempt status

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in Human Resources,Overtime Labor Laws

Adhere to standard payroll practices if you want to avoid paying unnecessary overtime for otherwise exempt employees. One of those standards is to pay a set salary regardless of the quantity or quality of work performed in a particular week.

Recent case: Mark worked as a claims adjuster for an insurance company. He was classified as an exempt administrative employee, based on job duties and responsibilities. However, the company had a unique way of paying him. He received $29 per hour while working on an assignment. However, if he chose not to work and instead slacked off, he wasn’t paid.

Mark claimed that for the year he worked for the company, he regularly worked about 60 hours per week, more than the standard 40-hour workweek. He did not, however, receive time and a half for those extra hours. Instead, he got $29 per hour for all hours worked. Thus, he was paid for every hour worked, but at the regular rate.

When he sued, the company argued that he was exempt. The court said he met the administrative exemption—except he wasn’t paid a salary. That destroyed his exempt status and made him entitled to time and a half for extra hours. (Negri v. Koning & Associates, No. H037804, Court of Appeal of California, 6th Appel­­late District, 2013)

Final note: California wage-and-hour law doesn’t define “salary,” but the court deferred to federal definitions. To constitute a salary, the payment must be a fixed amount, not an hourly rate. That fixed amount must be paid whether the employee was productive that week or not. An exempt employee who slacks off one week and handles less work may be disciplined for poor work, but he can’t lose pay.

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