Paying exempt workers a varying amount each paycheck – Minimum guarantee plus extras 29 C.F.R §541.604(b)

Many of us think of an FLSA OT exempt salaried worker as receiving the same amount of pay each and every week.  However some employers have their OT exempt workers pay tied to productivity measures such as the amount of hours worked.  Assuming all the other conditions are met,  29 C.F.R §541.604,  indicates that these types of pay arrangements can be acceptable and do not violate the salary basis of the FLSA.  29 C.F.R §541.604(b) in particular, provides some guidance on the issue.

The regulation indicates that the employee’s earnings can be computed on a varying  basis ( hourly, daily, shift etc.) if the employment arrangement includes a guaranteed minimum amount and a reasonable relationship exist between the guaranteed minimum amount and the amount actually earned by the employee. 29 C.F.R §541.604(b) provides an example of a reasonable relationship exist between the guaranteed minimum amount and the amount actually earned by the employee.  (Some employers provided the stated guarantee amount in the employees pay statements or other work documents)

The example in 29 C.F.R §541.604(b) suggest that a salaried employee who is receiving varying pay, but who has a stated guaranteed salary of at least 2/3 of the employee’s normal pay could be correctly classified as OT exempt. In the example, the employee has a stated guaranteed amount of $500 in a given week regardless of how much work is performed in the week. Further, the employee typically works four to five days (shifts) a week.

The regulation suggest that if the employee is paid at least $150 a shift then they are correctly classified according to the salary basis requirement.  Using the assumed amount of $150 a shift, results in a ‘reasonable stated salary guarantee to pay relationship’  floor of 2/3.  That is, the stated salary guarantee divided by the actual salary is 2/3.  In this example, $500/(5 shifts)x($150) = $500/$750 = .66666 = .67 or 2/3.