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Ask the Hotline | Will Extra Pay Affect Exempt Status?

September 11, 2018
 
Question 
 
We have a major project coming up that will involve a couple of my exempt employees having to work quite a bit of extra time for the next month or so. I heard that if you pay them any sort of extra money it may risk their classification as exempt. Is that true? Is there any way I can do something financially to recognize their extra effort? 
 
Answer
 
The answers to your questions are no and yes. 
 
Prior to the Fair Labor Standards Act (FLSA) regulatory changes in 2004, many employers were concerned that if they paid an exempt employee extra money for a special project, and it appeared to be overtime, it would raise a concern about the validity of the underlying employment classification. But the 2004 changes allowed employers to provide such additional compensation. 
 
That reason is that there is a section in the FLSA white-collar overtime regulations (Title 29 CFR §541.604) called “Minimum guarantee plus extras.”
 
The text in the section states that “an employer may provide an exempt employee with additional compensation without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly-required amount paid on a salary basis.” 
 
So, if a person’s current weekly salary level is at least $455 a week and the person is an exempt employee, the employer could pay the exempt employee in any of the following manners without losing the exemption:
  • flat sum
  • bonus payment
  • straight-time hourly amount
  • time and one-half or 
  • any other basis. 
The regulation also provides that an employer may “pay” the employee with paid time off. If you elect to pay the employee with paid time off, be sure to track the time and to recognize that this time is apart from any other vacation or paid time off you provide the employee. 
 
Contact the AIM Employer Hotline at 1-800-470-6277 with questions about HR compliance issues. 
 
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