Calculating Overtime For Salaried Employees

It's generally easy to calculate overtime for hourly employees. They receive time-and-a-half (150%) of their regular hourly rate for all working time over forty hours in a given week. Nothing more, nothing less. But as Des Moines employment lawyers and Des Moines wage lawyers, we more frequently represent salaried employees who are entitled to overtime. So how do you calculate overtime for someone who receives a flat salary, not an hourly wage? 

The first step is to determine the employee's regular rate of pay. If the employee is employed solely on a weekly salary basis, the regular hourly rate of pay, on which time and a half must be paid, is computed by dividing the salary by the number of hours which the salary is intended to compensate. That sounds simple, but issues can arise over the "intended to compensate" portion of that rule. The fewer hours that the weekly salary is intended to compensate, the better it is for the employee because that'll result in a higher regular hourly rate of pay and thus a higher overtime rate. Therefore employers and employees invariable argue over how many hours per week the salary was meant to compensate.

The thornier question is often the rate at which a salaried employee's overtime hours should be compensated. It's not automatically time-and-a-half. For various reasons, courts frequently award overtime to salaried employees at a rate of only 50% their regular hourly rate ("half time").

A 50% overtime rate for salaried employees usually results through application of the U.S. Department of Labor's "fluctuating workweek" rule. Under that rule, employers need to compensate salaried employees at a 50% overtime rate if certain conditions are met:

  • The employee is paid a fixed salary that does not vary with the number of hours worked during the workweek.

  • The salary is sufficiently large to ensure that no workweek will be worked in which the employee's earnings from the salary will fall below federal minimum wage.

  • The employer and the employee share a "clear mutual understanding" that the salary covers all hours worked during the workweek, regardless of the number of hours worked.

  • The employee's hours fluctuate from week to week.

If any of those conditions are not met then the employer must pay the salaried employee the standard 150% overtime rate.

Some employers fail the fluctuating workweek test because they do not pay their employees a true fixed salary. The full salary has to be paid regardless of the number of hours or days worked. At the same time, certain pay deductions for absences or disciplinary reasons may be permitted, but employers who take such pay deductions are walking a fine line and risk failing the fixed salary component of the fluctuating workweek rule.

The "clear mutual understanding" requirement for application of the fluctuating workweek rule is a common point of dispute in overtime cases involving salaried employees. There is not requirement that the understanding be reduced to writing or be otherwise acknowledged by the employee. The requirement of a clear mutual understanding is satisfied if the employee is generally aware that the salary is intended as compensation for whatever hours the employee works.

Employers and employees also sometimes argue over whether the employee's hours truly "fluctuate" as required for application of the fluctuating workweek rule. A fixed schedule of hours is okay. An employee's schedule need not be unpredictable to be considered fluctuating. The fluctuating workweek rule will still apply when a base number of hours are worked coupled with fluctuating overtime. 

Please feel free to contact us if you need the assistance of a Des Moines overtime lawyer.

Harley Erbe