How often can you change exempt employees' base salary?

by on March 30, 2009 · 0 Comment POSTED IN: HR Info Center

Court suggests every few months is OK, every couple of weeks isn’t

In this economic downturn, it might occur to you to trim salaries as an alternative to layoffs. If so, you’ll want to consider a recent legal case that affects exempt vs. nonexempt status and could set you up for overtime claims.

Almost 600 store pharmacists in Colorado sued Wal-Mart, claiming they were due overtime. Wal-Mart said they were salaried professional employees and thus exempt from the Fair Labor Standards Act’s overtime provisions.

Sham salaries challenge exempt vs. non-exempt status

The pharmacists countered that Wal- Mart frequently changed the base hours on which their salary was calculated. They argued that their status as salaried exempt employees was a sham, and the pharmacists were really treated like hourly workers.

A court ruled that most of the pharmacists were professionals, salaried exempt employees, and only two were not.

What mattered, the court stated, was how often their base salary was changed. DOL regs and previous rulings on exempt and non-exempt status didn’t pin down the issue perfectly, but did give a range.

An employer that changes exempt employees’ salary basis twice a year in response to, say, fluctuating order books, wouldn’t turn them into non-exempt workers. But an employer that changes the salary basis every week clearly would do so, the court said.

In the Wal-Mart case, most of the pharmacists had their base hours changed every 8-11 months. But two of them showed more frequent changes – in one case, 17 in 21 weeks – and the court said they had a case that they were treated as hourly workers.

Takeaway for HR: You can ask salaried employees to work fewer hours and take less salary. But if you constantly fiddle with their hours and base salary, you’ll set yourself up for overtime claims.

Cite: Archuleta v. Wal-Mart Stores, No. 07-1065, 10th Cir., 10/6/08

Leave a Reply


Request a Free Demo

We'd love to show you how this industry-leading training system can help you develop your team. Please fill out this quick form or give us a call at 877-792-2172 to schedule your one-on-one demo with a Rapid Learning Specialist.