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You Can't Make Someone Salaried to Avoid Overtime Payments

Dear Evil HR Lady,

I am wondering if you can help me with a question. I am an office manager and am considering moving several hourly employees to salary, me included. We are a small law firm and are trying to avoid the cycle of having to send people home early on Friday to avoid overtime and yet having work that still needs to be done.

My concern is that hourly employees accrue PTO and get Holiday pay. Is there a way you can be a salaried employee and still receive those benefits? If so, how do you figure out how to apply them etc? 

You're asking the wrong question. First of all, you cannot just make people salaried to avoid paying overtime. They must meet all the criteria to be exempt employees before you can stop paying overtime.

Let me say this again: Putting someone on salary does not mean you can stop paying overtime.

Are you still with me? In order to have someone be salaried exempt (that is, not eligible for overtime), they need to meet the criteria in the Fair Labor Standards Act. There are 3 requirements and all 3 must be met.

1. Each exempt employee must make a minimum of $455 per week. If they earn any less than that, they cannot be exempt, even if they meet the other criteria.

2. Each employee must receive the same amount of money each pay period. So, let's say that Joe is an exempt employee earning $1000 per week. On Tuesday he cuts out early because he wants to get his lawn mowed. His paycheck must still be $1000 per week. You can fire him for taking time off, but you still have to pay him that $1000 even if you fire him. In most cases, you can charge against vacation balances for things like that, but even if Joe has used up all his vacation, all his sick time, and still left early on Tuesday, you STILL HAVE TO PAY THE WHOLE $1000. (There are exceptions if he took an entire day off, or some people argue if he took a half day off.)

Many small business owners like the idea of not paying overtime, but then want to dock pay for things like doctor's appointments, or kids that get sick in the middle of the day. You cannot have it both ways. If you dock pay for leaving early, you also have to pay overtime for working more than 40 hours in a week.

3. Each employee must have a qualifying exempt job. This is the most complicated criteria and where businesses tend to get themselves in trouble. It doesn't matter what an employee's title is, it matters what work he does. Somethings are obvious--outside sales=exempt, for instance. Doctors, lawyers, pharmacists and accountants are exempt from overtime requirements. But what about you? Your title is "Office Manager." Sometimes people see the word manager and say, "Oh, managers are exempt from overtime requirements!" Well, maybe and maybe not. Do you manage two or more people with hire/fire authority? Then yes. If not, do you manage the office by paying the bills and ordering the office supplies? Probably not.

The kind folks at the FLSA website give a list you can use to make your determination:

(a) office or nonmanual work, which is
(b) directly related to management or general business operations of the employer or the employer's customers, and
(c) a primary component of which involves the exercise of independent judgment and discretion about
(d) matters of significance.
Now, I'm going to make a big guess here and say that I doubt the people you are talking about qualify under this. I'm sure they are all wonderful, but the you said you were a small law firm and I doubt you're talking about the attorneys (who are exempt under the professional exemption). The secretaries and paralegals are probably not going to qualify as exempt, and neither will the accounts payable/receivable person. (Even the National Federation of Paralegal Associates says that paralegals should be considered non-exempt.)

You work for a bunch of lawyers. They should understand that the law is what the law is and you can't get around it by changing everyone's status.

Now, as for your original question, you can handle vacation time for exempt employees anyway you want. You can allot the full amount at the beginning of the year. They can accrue it as the year goes on. As long as your state doesn't have any strange laws regarding vacation, you're bound by what's in your handbook.

Holiday pay? If you're closed for Christmas, you don't dock their paycheck. You pay it. Same goes with Labor day, groundhogs day and any other holiday you want to close the office for.

But, the reality is, you must pay these people overtime if they work more than 40 hours a week unless they meet all the requirements for exemption under the Fair Labor Standards Act. So, if you don't want to pay overtime, figure out how to manage workload better or hire more people.

For further reading:

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Photo by Robert Couse-Baker, Flickr cc 2.0

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