In order to claim overtime exempt status under the Fair Labor Standards Act’s white-collar exemptions, the position in question must meet both the duties and salary tests set forth under Department of Labor regulations. The salary mandate requires that the employee receive guaranteed weekly compensation above the set minimum. Last week, the Fifth Circuit Court of Appeals held that a pay plan that only guaranteed a fraction of the employee’s total compensation did not meet the FLSA’s salary test because the employees were paid on an hourly basis for most of their work.

In Gentry v. Hamilton-Ryker IT Solutions LLC, the plaintiffs were systems engineers who received a guaranteed weekly salary above the FLSA minimum, but which only amounted to eight hours of their overall compensation. Beyond this minimum, the employees were paid an hourly rate, including straight time for overtime. The Fifth Circuit concluded that because the salary made up such a small fraction of total compensation, there was no reasonable relationship between the salary and their overall pay. The salary was illusory because it made up less than 20% of that compensation.

The FLSA salary test rule allows employers to pay a guaranteed salary plus additional compensation. However, when the salary and non-salary parts of the employees’ pay are disproportionate, the employer runs the risk of claims for time and one-half overtime compensation.

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