An employer may prorate the base pay of a salaried employee without forfeiting the employee's exemption from the overtime requirements of the Fair Labor Standards Act (FLSA), as long as it covers the shortfall with additional premium compensation, the 3rd Circuit Court of Appeals held in Sander v. Light Action, +2013 U.S. App. LEXIS 8506 (3d Cir. 2013).
In Sander, a theatrical lighting employee was guaranteed a base salary of $60,000, for which she was expected to work 45 hours per week. She received additional compensation for working at off-site events and for working beyond the expected 45 hours.
During weeks when the employee worked completely on site, she was paid 1/52 of her annual salary - even in rare weeks when she worked less than the full 45 hours. During weeks when the employee worked off site, her employer calculated her compensation by prorating her standard salary for the number of hours she worked on site and then paid her at a higher rate for the hours worked off site. As a result, her total compensation during off-site weeks was higher than her standard weekly salary.
The employee filed a claim against her employer, arguing that her employer's practice of prorating her base salary during weeks when she worked off site violated the FLSA's salary basis test, which requires that employees be paid a predetermined amount that is "not subject to reduction because of variations in the quality or quantity of the work performed."
However, the 3rd Circuit rejected her claim, noting, "The reason that her hours were 'prorated' during those weeks was not to deduct anything from her base rate, but rather to ensure that she was paid a premium for the hours she spent off-site. In other words, the additional compensation she earned for working at shows was effectively calculated on an hourly basis, and she was paid that premium on top of her standard weekly salary."
An employer operating in the 3rd Circuit - which covers Delaware, New Jersey and Pennsylvania - now has a strong precedent for similar compensation schemes.