Every employer in Oregon knows (at least we hope they know!) that nonexempt employees must be paid overtime (time and a half) for work exceeding 40 hours in a single workweek. In manufacturing establishments, daily overtime is required for non-exempt employees working over 10 hours in a single work day. Simple, right? Well, sometimes it’s not so simple.
One of the more complicated aspects of calculating and managing overtime is when non-exempt employees are paid a salary. This structure is typically used by employers for more administrative/office employees who work a fairly consistent work schedule every week. The advantage is that there is usually less recordkeeping for the employee and employer if the employee’s pay is a straight salary. For the employee there is also the advantage of having a little more flexibility. The problem is that employers can put themselves at risk for a wage and hour challenge by failing to correctly pay for all time work and appropriate overtime.
Let’s first look at overtime and determining the regular and overtime rate of pay for a salaried nonexempt employee. The regular rate is calculated by dividing the employee’s weekly salary by the number of hours that salary is intended to compensate. The overtime rate is 1.5 times the regular rate of pay. For example, an employee with a salary of $525 per week which is intended to compensate for a 35 hour work week, earns a regular rate of $15 per hour ($525/35 = $15). This employee’s overtime rate is $22.50 ($15 * 1.5 = $22.50).
Now let’s look at paying appropriately for all time worked. In the scenario above what if the employee worked 38 hours one week? What is the employer required to pay the employee? Many employers would say $525 because that is the agreed upon salary and the employee has worked no overtime hours. Right? Not so fast. Oregon law requires that all nonexempt employees be paid for all hours worked. In this scenario the employee must be paid the salary of $525 plus three more hours at the employee’s regular rate of pay ($15 * 3 = $45).
On the flip side, what if the employee only worked 32 hours one week? Is the employer required to pay the agreed upon weekly salary of $525? Generally, not. In this case, the employer can reduce the nonexempt employee’s salary by $45 ($15 * 3 hours).
You may be wondering, if an employer must pay a nonexempt salaried employee for any and all time work, and if they must track every bit of time worked over 40 hours in a workweek and pay that time at the appropriate overtime rate, what is the advantage of the salaried nonexempt classification? In Oregon, there seems to be very little advantage to this classification unless the employer meets the requirements to pay overtime by the Fluctuating Work Week method. What is that? Stay tuned for our follow-up article.
By: Lynn Morris, PHR, HR Consultant