Salary vs Hourly – the FLSA may decide

When deciding whether or not to pay an employee a salary or an hourly wage, the decision may not be up to the company. The federal government, through the Fair Labor Standards Act (FLSA) section 13(a)(1), has set out guidelines on the use of exempt salary for employees. An exempt employee is one who an employer is not required to pay overtime.

While one may think that an employee is an exempt salary employee, perhaps because of job title, it is wise to check the guidelines first. There are three tests that the government uses to determine if an employee is eligible for exempt salary.

*Salary Level Test – the employee must be guaranteed a salary of $455 per week.

*Salary Basis Test – the employee must be guaranteed a minimum amount (at least the $455) a week which is
not subject to reduction based on the amount of work or type of work being performed.

*The Duties Test – This Test contains three parts of which all three parts must be met.
* Supervises two or more employees
* Management is a primary duty of the position
* Significant Input or the ability to hire and fire employees

So when you are considering paying an employee an exempt salary, check with the Department of Labor or your legal professional as to whether or not the employee qualifies for an exempt salary position. The result of accidentally putting someone on an exempt salary could be fines, interest and unpaid overtime being paid to the employee and government as well as any other employees the Department of Labor may find that have not been paid correctly.