Tuesday, November 6, 2018
Hey Fletch … Thank you for your earlier response to my question about how our church is paying salaried people for the number of hours worked. My church leaders are insisting we hired someone as an exempt hourly employee. We therefore do not need to pay them a fixed amount per paycheck but rather the hours they have worked. At this point I am about to drop the issue as it’s not my place to push further and I do not have the experience or education to back up my concerns. Can you explain to me what an exempt hourly employee is?
DRF—From my perspective, I don’t see that hourly employees can have their base pay reduced for the number of hours worked in a week. There could be a base pay of the federal minimum, plus other compensation … and that is getting into some fine distinctions in the law. Basing that on hours would be a creative and borderline decision.
The DOL is clear on how exempt employees are to be paid. They say:
Generally, an employee is paid on a salary basis if s/he has a “guaranteed minimum” amount of money s/he can count on receiving for any work week in which s/he performs “any” work.
This amount need not be the entire compensation received, but there must be some amount of pay the employee can count on receiving in any work week in which s/he performs any work. Some “rules of thumb” indicating that an employee is paid on a salary basis include whether an employee’s base pay is computed from an annual figure divided by the number of paydays in a year, or whether an employee’s actual pay is lower in work periods when s/he works fewer than the normal number of hours.
However, whether an employee is paid on a salary basis is a “fact,” and thus specific evaluation of particular circumstances is necessary. Whether an employee is paid on a salary basis is not affected by whether pay is expressed in hourly terms (as this is a fairly common requirement of many payroll computer programs), but whether the employee in fact has a “guaranteed minimum” amount of pay s/he can count on.
… Similarly, paying an employee more than the guaranteed salary amount is not normally inconsistent with salary basis status, because this does not result in any reduction in the base pay.
With some exceptions, the base pay of a salary basis employee may not be reduced based on the “quality or quantity” of work performed (provided that the employee does “some” work in the work period). This usually means that the base pay of a salary basis employee may not be reduced if s/he performs less work than normal, if the reason for that is determined by the employer.
Thus, there can be “permissible” and “impermissible” reductions in salary basis pay. Permissible reductions have no effect on the employee’s exempt status. Impermissible reductions may, in that the general rule is that an employee who is subjected to impermissible reductions in salary is no longer paid on a salary basis, and is therefore nonexempt.
Perhaps your church is paying exempt staff with a base pay of the federal minimum (currently $23,660) and calculating hours over that as extra compensation. While it may be legal, I would be uncomfortable with that.
What you can do is to show the leaders the DOL pages, let your CPA know of the issues, and serve well!