- Project payments can sometimes satisfy the Fair Labor Standards Act's (FLSA) salary-basis requirement for overtime exemption, according to a Jan. 7 U.S. Department of Labor (DOL) opinion letter.
- Responding to a question from an unnamed employer, the agency considered a situation involving educational consultants paid on a per-project, salary basis. In one hypothetical example, a consultant (who is assumed to meet the law's duties test) is paid $80,000, in 20 biweekly installments, for a 40-week project involving variable hours. In a second example, that same consultant is assigned to an additional overlapping eight-week project and paid an additional $6,000 in four biweekly payments of $1,500 each. Despite the possible fluctuations, the arrangements are permissible, DOL concluded.
- Exempt employees must be paid on a "salary or fee basis," meaning they regularly receive "a predetermined amount of compensation each pay period on a weekly, or less frequent, basis," according to a DOL fact sheet; "The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work." But in the employer's hypothetical situation, the amounts would not vary based on the number of hours worked or on the quality of the work performed, the agency noted. Even if the employee's pay is increased or decreased over the course of the project, said DOL, "these changes may not necessarily defeat the salary basis exemption provided the revised biweekly payment meets the minimum threshold."
"This letter appears to expansively broaden the ability of employers to prospectively change the rate of pay for salaried exempt employees while maintaining the employees’ exempt status," Littler Mendelson attorneys Amanda Inskeep, Tammy McCutchen and Jeff Nowak said a blog post for the firm.
Generally, the FLSA requires that to be exempt from overtime, employees perform certain types of duties and be paid a certain minimum amount (currently $684 per week, per the new overtime rules) on a salary or fee basis, depending on the exemption. Exempt employees need not be paid for workweeks in which they perform no work, but they must generally receive their full salary for all weeks in which they perform any work. Improper deductions can jeopardize an employee's exempt status.
With this most recent letter, DOL "has seemingly opened the door for myriad acceptable reasons to change an employee’s salary rate, so long as the changes are not so frequent that the employee’s pay is rarely the same from pay period to pay period or under such circumstances that would suggest the rate of pay is tied to the amount or quality of work performed," the Littler attorneys said, suggesting that employers considering such a project-based compensation plan consult counsel.