Under-reporting Hours Doesn’t Alter Exempt Status

By James Hatch

May. 25, 2006

Twenty-four salaried employees at Detroit Edison claimed that they were not paid on a salary basis and, hence, were eligible for overtime pay. Eventually, 383 employees signed the complaint. The plaintiffs identified more than 40 occasions over six and a half years when some exempt employees did not receive one-twenty-sixth of their annual salary during a particular biweekly pay period.

    Detroit Edison’s exempt employees were guaranteed to receive one-twenty-sixth of their set annual salary each biweekly pay period, provided that they input at least 40 hours per week into the payroll system. They were allowed to report hours in excess of the hours they actually worked in order to input sufficient hours to generate their full predetermined amount each pay period. However, employees could receive less than their full salary if they accidentally reported less than 40 hours per week. Detroit Edison also had a system for correcting such errors.

    The trial court decided, and the appellate court agreed, that as long as employees regularly received one-twenty-sixth of their annual salary each biweekly pay period, and no deductions were made other than those expressly permitted by law, tracking or accounting of actual hours worked by exempt employees did not violate the salary basis test. Docking employees for a time-entry error did not call into the question the company’s intention to pay them on a salary basis. Hence, no overtime was owed. Acs v. Detroit Edison Co., 6th Cir., No. 05-1042 (4/14/06).

    Impact: Employers should know that so long as salaried employees receive the appropriate portion of their salary each pay period, requiring the accounting of actual hours worked does not affect their exempt status.

Workforce Management, May 22, 2006, p. 11Subscribe Now!

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