The Salary Basis Misconception
The FLSA overtime exemptions — executive, administrative, professional — require both a salary basis test AND a duties test. Many managers know about the salary basis ($684/week minimum as of 2024) and assume that's sufficient. It's not. If an employee's job duties don't meet the specific exemption criteria, they're non-exempt and entitled to overtime regardless of how they're paid.
Salaried non-exempt employees are more common than payroll teams realize. Entry-level salaried workers in administrative support roles often don't meet the duties test. Supervisors who spend most of their time on non-managerial tasks may not meet the executive exemption test. When in doubt, the employee is non-exempt.
How to Calculate Overtime for Salaried Non-Exempt
The FLSA provides two methods for computing overtime for non-exempt salaried employees:
Method 1: Fixed Workweek
If the employee's salary is intended to cover a fixed number of hours per week (e.g., 40 hours), the regular rate is the salary divided by those fixed hours. Overtime is paid at 1.5x that rate for hours over 40.
Example: $800/week salary for 40-hour week = $20/hr regular rate. 48 hours worked = 8 OT hours × ($20 × 1.5) = $240 OT pay. Total: $1,040.
Method 2: Fluctuating Workweek (Half-Time Method)
If the salary is agreed to cover all hours worked in a week (regardless of how many), you use the fluctuating workweek method. The regular rate varies each week based on total hours worked. Overtime is paid at only 0.5x (not 1.5x) because the straight-time portion is already included in the salary.
Example: $800/week salary, 48 hours worked. Regular rate = $800 ÷ 48 = $16.67. OT premium = $16.67 × 0.5 × 8 = $66.68. Total: $866.68. Significantly less than Method 1 — which is why the fluctuating workweek method is attractive to employers and why it requires a clear mutual agreement upfront.
Requirements for Fluctuating Workweek
The FWW method isn't available by default. It requires:
- A clear mutual understanding that the salary covers all hours worked
- Hours that actually fluctuate from week to week
- The salary must be sufficient to compensate for all hours at or above minimum wage
- The salary must be paid in full regardless of hours worked (if the employee works 30 hours, they still get the full weekly salary)
What Payroll Usually Gets Wrong
The most common error: treating salaried non-exempt employees as exempt and not paying overtime at all. Second most common: calculating overtime correctly but at the wrong rate because the regular rate doesn't include nondiscretionary bonuses. Third: using the FWW method without a documented agreement, which exposes the employer to claims that the standard 1.5x rate should have applied.
Run the numbers with the FLSA Calculator to verify your calculation method is producing the correct result for each employee type.