Can I pay exempt employees extra without jeopardizing their exempt status?

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Exempt employees are not entitled to overtime pay; however, an employer may choose to pay exempt employees extra compensation in addition to their fixed salary without jeopardizing the exempt status.

The Fair Labor Standards Act (FLSA) requires most exempt employees to be paid on a salary basis. Compensating beyond the salary does not dilute nor nullify the salary basis, as described in 29 C.F.R. §541.604, Minimum Guarantee Plus Extras: "Such additional compensation may be paid on any basis (e.g., flat sum, bonus payment, straight-time hourly amount, time and one-half or any other basis), and may include paid time off." Therefore, an exempt employee may be provided extra pay for extra work without violating the requirements of the salary basis regulation.

Extra pay can be paid in any amount, although some employers choose to pay an hourly rate. To calculate an hourly rate based on annual salary, divide an employee's annual salary by the number of hours to be worked in a year. For example, 40 hours per week times 52 weeks equals 2,080 hours per year. An annual salary of $52,000 divided by 2,080 hours is an hourly rate of $25 per hour.

According to the Department of Labor, it is acceptable to track the time of exempt employees for the purposes of performance, discipline and other organizational matters such as billing and extra pay. However, some employers feel the more they track an exempt employee's hours, the greater the risk of scrutiny regarding exempt status. For that reason, employers that want to reward the extra efforts of their exempt employees often allow time off or special consideration at bonus time instead of extra wages. Nevertheless, it is permissible to count the hours that an exempt employee works to compensate the employee over and above the salary basis.