As John Kenneth Galbraith famously said, “Faced with the choice between changing one’s mind and proving that there is no need to do so, almost everyone gets busy on the proof.”

For 35 years, I have been saying that employers who wanted to pay straight time overtime, rather than time and one-half premium overtime pay, could do so, albeit indirectly, if they structured their employment agreement accordingly. Not only could they pay this kind of overtime to their nonexempt employees, but they could also do it for employees who may be on the cusp of the exemption.  Thus, in the event of a dispute over the exemption status of the worker, they would have already been paid the modified half-time overtime premium should the employer lose the classification dispute. All that is perhaps required is that “employers get busy on the proof.”

The Fair Labor Standards Act (“FLSA”) requires payment of overtime to nonexempt employees for hours worked in excess of forty hours in a workweek. 29 U.S.C. § 207(a)(1). If an employer fails to pay overtime, the employer will be liable “‘in the amount . . . of their unpaid overtime compensation.’” Calderon v. GEICO General Ins. Co., 809 F.3d 111, 131 (4th Cir. 2015) (quoting 29 U.S.C. § 216(b)).

In “mistaken-FLSA-exemption cases,” the majority rule follows a well-established “method for calculating compensatory damages for lost overtime” in circumstances where “‘the employer and employee had a mutual understanding that the fixed salary was compensation for all hours worked each workweek and the salary provided compensation at a rate not less than the minimum wage for every hour worked.’” Id. (quoting Desmond v. PNGI Charles Town Gaming, LLC, 630 F.3d 351, 354 (4th Cir. 2011). In such cases, “a court should divide the employees['] fixed weekly salary by the total hours worked in the particular workweek,” producing the “regular rate” for a given workweek. [Desmond, 630 F.3d at 354] (citing Overnight Motor Transp. Co. v. Missel, 316 U.S. 572, 579–80, 62 S.Ct. 1216, 86 L.Ed. 1682 (1942)]. The employee should then receive overtime compensation for each week in an amount no less than half of the regular rate for that week multiplied by the number of hours worked in excess of 40.  Calderon, 809 F.3d at 131 (bracketed citation added).

The notion that underlies this approach, which has been adopted by the Department of Labor as the “fluctuating workweek” (“FWW”) method, is that the regular rate derived from this calculation represents straight-time for all hours worked. Thus, “[p]ayment for overtime hours at one-half such rate in addition to the salary satisfies the overtime pay requirement because such hours have already been compensated at the straight time regular rate, under the salary arrangement.” 29 C.F.R. § 778.114. Accordingly, the overtime paid is only one-half the regular rate of pay, hence the name “half-time,”  and is calculated based on all the hours the salaried employee works, divided by the salary.

Where, the exempt worker is offered a position that provided for a fixed salary for all hours worked and the salary is paid regardless of whether the worker was engaged either more or fewer hours, there can be little doubt that this position was mutually understood to be a salary basis position, albeit not every court has agreed withthis logic. The fact that an exempt worker was paid extra compensation for overtime hours does not alter the fact that parties “had a mutual understanding that [the] fixed salary was compensation for all hours worked each workweek.” See Calderon, 809 F3d at 131. This essentially is nothing more than an issue of whether an employee was paid on a salary basis. DOL regulations provide that “[a]n employer may provide an exempt employee with additional compensation without . . . violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly-required amount paid on a salary basis.” 29 C.F.R. § 541.604(a). The salary basis requirement is not violated if an employee “receives additional compensation (beyond the worker’s guaranteed salary) based on hours worked for work beyond the normal workweek . . . and may be paid on any basis (e.g., flat sum, bonus payment, straight-time hourly amount, time and one-half or any other basis). . . .” Id.

It matters little that employer accomplished the task of fully compensating the worker for his overtime hours using a methodology different from the one set forth in the Calderon case (as well as 29 C.F.R. § 778.1114). A recent case out of New York makes this point with abundant clarity. Among the many issues considered by the Court was the argument put forward by the plaintiffs that an employer may not use the fluctuating workweek method simply because it did not calculate overtime pay in the correct manner even though the employer paid more than was due. See Ramos v. Telgian Corp., 176 F.Supp.3d 181, 200-01 (E.D.N.Y. 2016). The Court rejected the plaintiffs highly technical argument and stated:

[The Plaintiffs’] insistence that Defendant's technical violation of the FWW's [sic] is, in itself, sufficient to establish Defendant's liability under the FLSA vaunts form over function, because it ignores the fact that the method used by Defendant to calculate overtime rates, though different than the method required by the FWW rule, actually resulted in Plaintiffs being paid more than the overtime rate mandated under the FWW scheme. Indeed, it is undisputed that Defendant's calculated overtime rates resulted in an overpayment to Plaintiffs. This is because dividing a constant—each Plaintiff's fixed weekly salary—by a larger number, i.e., 40 hours plus however many hours each Plaintiff worked over 40 hours in a given week, will always result in a smaller hourly rate, and therefore overtime rate, than dividing that same constant by a smaller number, i.e., 40 hours. See Missel, 316 U.S. at 580, 62 S.Ct. 1216 (“[I]f there is a fixed weekly wage regardless of the length of the workweek, the longer the hours the less are the earnings per hour [and therefore the corresponding overtime rate].”). The latter, more generous method is how Defendant calculated Plaintiffs' regular hourly rate."

[I]f the FWW scheme is found to apply to Plaintiffs, this element has, as a matter of law, been satisfied, despite Defendant's failure to use the prescribed method for calculating Plaintiffs' regular hourly rates, which affected their overtime rates. To conclude otherwise would lead to the absurd result that employers such as Defendant would incur liability for paying their employees more than what the law requires.

Id. It would be an absurd result to assume because an employer agreed to pay overtime to a worker at some premium basis in excess of half-time, that the same worker then is entitled to time and one-half overtime and ineligible for half-time.  What matters is not how employer came up with the amount of compensation owed. What matters is whether the salaried employee has been paid at least the half-time premium, or more.

It is sometimes said in wage and hour law that no good deed goes unpunished. Pay more than half-time premium overtime to a salaried worker, and next thing you know the Department of Labor or a plaintiff’s lawyer wants full time and one-half overtime. But this would constitute an undeserved bonus to worker. Just because the employer already paid more than the law requires, doesn’t mean it must pay an additional premium to bring the worker up to time and one-half overtime pay. That would end up paying the worker more than three times the overtime premium due her as a salaried employee under the FWW method.

The U.S. Department of Labor (“DOL”) has long approved “modified” half-time compensation. By modified, we mean different than the traditional half-time calculation. For example, see Wage and Hour Opinion Letter signed by the Administrator setting forth the federal agency’s long-held policy to approve double half-time See WH Opinion Letter dated May 10, 1968. And there are other letters approving modified half-time (i.e., calculated on a 40-hour work week divisor rather than all hours worked). Reliance on the written rulings of the DOL is supposed to be an absolute defense to back wage liability under the FLSA’s Portal-to-Portal Act provisions.

Both modified and double half-time produce higher overtime premiums than regular half-time. And if you combine the two options into a double modified overtime, you end up with the equivalent of a straight-time premium. Employers cannot unilaterally pay nonexempt workers straight-time in place of time and one-half overtime. But call it something else, reach an agreement an understanding with a salaried nonexempt worker, and the employer can instead pay double modified half-time. That is why I have long counseled that it is possible to pay the equivalent of a straight time overtime to nonexempt workers, provided you get busy proving it is really “double modified half-time.”