It is common for employers to want to pay their employees a flat salary, without tracking hours or paying overtime wages. Paying employees salary only provides employers with month-to-month predictability and stability in their payroll, in addition to lessening the burden of monitoring and policing employee work hours. Employees often also would prefer to be paid a salary, and receive a "guaranteed paycheck," rather than have their pay fluctuate based on the number of hours worked in a particular pay period. With initiatives at both the state and federal level to increase the mandatory minimum wage, employers may be further tempted to adopt a flat salary for their employees.
In structuring their compensation programs, however, employers should be cognizant of the fact that, with the exception of certain categories of "exempt" employees, the Fair Labor Standards Act (FLSA) requires employers to pay overtime wages for all hours worked in excess of 40 per week by an employee, regardless of the agreement reached between the parties. There are many common misconceptions concerning who is covered by the FLSA and what the act requires of employers. It is thus incumbent upon employers, and counsel representing them, to closely analyze whether each of their employees qualifies for one of the limited exemptions under the FLSA, before agreeing to pay the employee a salary as opposed to paying that employee hourly up to 40 hours, and then time-and-a-half for overtime.
