Federated Insurance: Pay salaried non-exempt employee for actual hours worked?
If a salaried non-exempt employee works more than 40 hours in a workweek, the employer must pay overtime. If a salaried non-exempt employee works fewer than 40 hours in a workweek, may an employer pay them based on their actual hours worked (e.g., 38 hours)? It does not seem fair to the hourly employees if they are docked for working fewer than 40 hours in a workweek and yet a salaried nonexempt employee would not be.
As background, non-exempt employees need only be paid for the time that they actually work. Apart from statutory paid sick leave requirements under some states’ laws and now federal law (the latter pertaining to COVID-19 absences) or any contract providing otherwise, no federal or state employment law requires that they be paid when they do not work. Regardless of the form of compensation paid to nonexempt employees (i.e., hourly, salary, piece-rate, etc.), employers must ensure that such personnel earn compensation that equates to at least minimum wage for each hour that they work, plus overtime at the rate of one and one-half times the regular rate of pay for hours worked in excess of 40 in a workweek. When a non-exempt employee is paid on an hourly basis, it is easier to ensure that minimum wage and overtime requirements are met, and the calculations are often simpler to compute (assuming no additional remuneration). Indeed the employer simply multiplies the number of hours worked by the hourly rate of pay for straight time hours, and uses the applicable 1.5 multiplier for any overtime hours worked. For this reason, many employers choose to pay non-exempt employees by the hour.
That said, it is not unlawful to pay non-exempt employees on a salary basis and some employers do so. If a non-exempt employee is paid on a salary basis, the employer must still ensure that minimum wage and overtime requirements are satisfied. This means that the employer must take care to ensure, each week, that when the salary paid to any non-exempt is divided by the number of hours that were worked (of which such employee should be keeping accurate records), the result is not a sub-minimum hourly rate of pay. If it is, the employer must true-up the compensation to meet the minimum wage standard. Employers must also ensure that salaried, non-exempt employees are properly paid if overtime hours are worked. This is ordinarily done by first determining the employee’s regular rate of pay and then computing an appropriate overtime amount based on how many hours over 40 were worked that week (if the employer uses the fluctuating workweek method of compensation, please note that the recent federal guidance addresses the implication of bonuses, see Fact Sheet #82: Fluctuating Workweek Method of Computing Overtime. Because these calculations are often more administratively burdensome, it is less often the case that employers pay non-exempt employees on a salary basis. That said, so long as minimum wage and overtime requirements are satisfied, this is a lawful means of paying such employees.
Getting specifically to your question and assuming there is no contractual prohibition and the fluctuating workweek method is not in use, there is no law that prohibits an employer from prorating a non-exempt employee’s salary commensurate with time missed from work. (That said, if the employer does so, it begs the question of why the employer is utilizing a salary basis of pay in the first place — it may be easier to simply pay by the hour.) The employer should ensure that its policies and practices support salary proration for non-exempt employees and that no contract is violated if this done. You indicate that the employer presently pays certain non-exempt employees a weekly salary regardless of the number of hours worked, such that if fewer than 40 hours are worked in the workweek the same salary is still paid to them (whereas hourly workers are paid only when they work). There is no law that prohibits this, per se, although again the employer must still take care to ensure that minimum wage and overtime requirements are met.