Just Because an Employee is Exempt Doesn't Mean They Can't Be Paid Extra

Sometimes employees who are exempt from the overtime pay regulation need to work more hours, especially during busy seasons. Or perhaps you need more staff, but less than justifies hiring another person. Or perhaps you want to motivate exempt staff by offering them the opportunity to earn a commission or production bonus.

Can you pay an exempt employee more compensation for taking on extra responsibilities, working extra hours or shifts, or producing above-and-beyond the call?

Yes, you can.

Under 29 CFR 541.604, exempt employees may be provided with “additional compensation without losing the exemption or violating the salary basis requirement.” In short, you can pay them extra without turning them from an exempt to a non-exempt employee who is eligible for overtime pay. The critical requirement is that the employee be guaranteed at least the weekly salary minimum to be considered exempt, currently $455.00 under the federal regulations (although states may require more). The commission or bonus pay must be “gravy”—it must be over and above a consistent salary that meets the exemption threshold requirements, and which is properly paid without improper deductions.

However, as long as that standard is met, a company can offer its exempt employee additional compensation in a wide variety of ways: a sales commission, for example, or a percentage of company profits; or a flat additional sum, a bonus, an hourly rate, or even the opportunity to earn paid time off. You could even pay at a time-and-half or equivalent basis under the regulations, but this is a dangerous practice—it could look too much like overtime wages, and may lead to misunderstandings as to the employee’s status.

The Department of Labor applied this rule in a 2005 advisory letter which said that an exempt nurse could be offered shift differential pay for working evenings or nights—basically, an hourly bonus for the night shift—without affecting her exempt status.

However—and this is vital—if an exempt employee takes on extra work, make sure that the bulk (over 50 percent) of the work he or she does remains exempt work. If not, as we’ve previously written, you may be endangering the employee’s exempt status.