# Properly Prorating Salary for Exempt Employees

Contact

If you are a regular reader of this blog, you are hopefully familiar by now with the notion that exempt employees generally must be paid their full weekly salary for all workweeks in which they perform any work. There are certain limited exceptions to this rule. For example, if an exempt employee starts or ends employment mid-workweek, the employer may prorate the employee's salary accordingly. This calculation is easy fairly easy if the employer uses a weekly pay period - just take the regular weekly salary, divide by the number of days that salary usually covers (e.g., 5), and multiply by the number of days the employee was employed.

But what if an employer pays salaried employees semi-monthly? In that scenario, the employer divides the employee's salary into 24 semi-monthly pay periods. However, because the pay period is no longer tied to the workweek, different pay periods can have different numbers of working days. There are at least a couple of different ways an employer could prorate an employee's pay under these circumstances:

1. Calculate a day rate for each pay period by dividing the semi-monthly salary by the number of working days during the pay period. Then, multiply the day rate by the number of days worked during the pay period to calculate the employee's salary.

2. Alternatively, an employer could calculate a day rate by dividing an employee's annual salary by the 52 weeks in the year, then dividing by the number of working days per week. The day rate is then multiplied by the actual number of days worked.

Which method is correct?

That was the issue addressed in a recent decision by a federal district court in Washington State in Kirchoff v Wipro Inc. The plaintiff in that case alleged that his employer violated the Fair Labor Standards Act and the Washington Minimum Wage Act by using method 1, effectively shorting him by \$41.31 for his first week of employment, and \$73.43 for his final week.

The court's conclusion? The FLSA does not mandate one specific method for prorating an exempt employee's salary in situations where deductions are permitted. Rather, 29 C.F.R. § 541.602(c) says that an employer may "use the hourly or daily equivalent of the employee's full weekly salary or any other amount proportional to the time actually missed by the employee."

Because the deduction calculated using method 2 is proportional to the amount of time actually missed during a given pay period, the court held that method was permissible under the rules.

Insights for Employers

1. Yes, the plaintiff in this lawsuit literally made a federal case out of a \$114.74 shortage. Why did he bother? And why would his employer pay its lawyers to take the case to summary judgment, rather than just writing the guy a check? Two words: class action. This case wasn't about one employee, it was about however many salaried exempt employees the employer had hired over the preceding three years, and even more so, about the fees the plaintiffs' attorneys could recover if they won or extracted a favorable settlement. Even small wage and hour issues can add up to big dollars.
2. Although Kirchoff dealt with prorating salary at the beginning and end of employment, the court's conclusion appears to apply equally to prorating an exempt employee's salary for other reasons permitted by the regulations, such as when an employee is absent for personal reasons.
3. Remember, this a decision by one district court. While the court's conclusion appears sound and should apply elsewhere, at least for purposes of federal law, results may vary in your jurisdiction. Consult your wage and hour lawyer before relying on this decision.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

Contact
more
less

# "My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

##### Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

##### Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

##### Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

##### Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.