Sixth Circuit: Daily Rate Does Not Align with Exempt Classification
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APPLIES TO All Employers with Employees in KY, MI, OH, TN |
EFFECTIVE April 1, 2025 |
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Discussion:
In Pickens v. Hamilton-Ryker IT Solutions, the Sixth Circuit Court of Appeals said that an employee cannot be paid a daily rate and still be classified as exempt under the Fair Labor Standards Act (FLSA). Here, an employee regularly worked more than 50 hours per week at $100 per hour but was guaranteed pay each week for the equivalent of 8 hours (based on 8 hours of pay at his $100 hourly rate), with every subsequent hour paid hourly. His employer classified him as salaried exempt, and therefore did not pay him overtime.
The FLSA allows salaried exempt employees to be paid in two ways. First, an employee must be paid “a predetermined amount” “on a weekly[] or less frequent basis” and be paid the full amount for any work performed in a workweek.” Second, employees whose earnings are “computed on an hourly, a daily, or a shift basis” nonetheless receive a “salary” if they are guaranteed a certain amount per week that is “roughly equivalent” to their “usual earnings.”
The court said that to be paid on a weekly basis, an employee must be paid for a regular week’s worth of work. The fact that the “payment is weekly must not be merely incidental to the payment; the week must serve as the fundamental unit around which the payment is structured.” The court here said the employee was guaranteed payment for a single day’s work, but was not paid a salary. Unlike a weekly rate, which compensates an employee for a week’s work, no matter the number of hours worked, the rate the employee received compensated him for either an hour’s work or eight hours’ work. Moreover, the employee’s hourly rate (paid on average for 52 hours a week) cannot be described as merely “additional compensation” to his eight-hour “salary.” All of his pay was based on a fixed hourly rate for hours worked within the normal workweek, which meant that he was improperly classified as overtime exempt.
Action Items
- Review exempt salaries for compliance.
- Review historical corrections with legal counsel.
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