On November 8, 2018, the DOL issued Opinion Letter FLSA2018-24, addressing the question of when additional payments to an exempt employee based on an hourly, daily or shift basis defeats the professional exemption. In short, an exempt employee may have a “guaranteed salary”, but then also receive additional compensation on an hourly, daily, or shift basis, so long as there is a “reasonable relationship” between the guaranteed amount and actual wages earned. Generally, I tell employers not to ever pay a salaried employee based on hours worked; this is the exception to that rule – so long as it is properly done.
Usual earnings between 1 to 1.5 times the guaranteed salary will typically satisfy this test. (i.e. the employee is guaranteed $500 a week and typically earns $600 to $750 a week). The Court did not address earnings between 1.5 times and 1.8 times the guaranteed salary. The Court noted that earnings more than that (i.e. 1.8 times or double) may not have a “reasonable relationship,” and thus, may defeat the exemption (and thus, minimum wage and overtime applies). Yet, no bright-line rule exists, and the DOL will look at it on an employee-specific basis (not as a group). Keep in mind that this test does not apply to other payments made to an exempt employee such as bonuses, commissions, etc., which do not have the “reasonable relationship” requirement.