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I have gotten quite a few calls from employers on the question of whether they are legally permitted to pay exempt (executive, professional or truly qualified administrative workers) employees extra compensation without jeopardizing their exempt status.  Typically, the employer has special circumstances or a time sensitive project which will require additional hours of work.  The question becomes whether, since this is time limited, they are legally permitted to pay for overtime or create a quid pro quo of additional days off.

First: is an employer required to do so? The answer is definitely not so long as the employee is truly exempt.  Particularly with respect to administrative employees,  miscategorization is rife and the first step in any analysis is to determine whether the employee has been properly classified to avoid exposure under the wage/hour laws.

Second: must the employee agree to the extra work? In the absence of a collective bargaining agreement or employment contract with explicit delineations of the scope of work or hours of work, exempt employees are expected to rise to the occasion.  I recommend that your employee handbook contain a reference to the “needs of the organization” and that, in such an eventuality, you provide adequate notice and flexibility.

The “white collar” exemptions do permit you to pay additional compensation without violating the salary basis requirement, so long as the minimum weekly salary comports with the statutory baseline.  The baseline for federal purposes is $455 per week; HOWEVER, each state is free to impose its own minimum standard and that in New York is considerably higher already and headed even higher based on increases to the statutory minimum wage. 

Some federal courts have even sanctioned hourly pay  calculations for additional work even though the employees were on straight salary.  In theory, employers have an option to pay bonuses, commissions on sales, profit sharing, or additional compensation based on the hours worked beyond the standard workweek.   Moreover, time and a half rules do not apply and the option of paid time off (PTO) at a later date is available.

HOWEVER (and those of you who know me personally know that there can always be a however in employment law), I do not recommend adopting any pay calculation on the hourly rather than bonus basis.   We are being bombarded with misclassification matters now and the devil is in the details as to the actual nature of the employee’s duties.  The one case in the 2^nd Circuit in this regard has held that the employer, CVS, did not violate the law by calculating pharmacists’ remuneration as a function of hours even though they fulfilled the terms of the learned profession exemption because guaranteed base pay exceeded the statutory minimum.  A case resounding in similar principles addressed commission payments to securities brokers.  Nevertheless, the courts are highly unlikely to adopt this approach when confronted with administrative employees.

The safest and most expeditious way to address good performance and work above and beyond expected hours is by BONUS payments for work on special projects. 

Before making an offer of overtime pay to a managerial employee, you should consult with employment counsel as well as your accountant.  I also strongly encourage you NOT to consider making the special project income attributable to 1099 independent contractor status as the issuance of both a W2 and a 1099 by the same employer to the same individual in a calendar year will trigger both IRS and Department of Labor audits.