After a nearly two year investigation, the USDOL is requiring a franchisee which operates 55 Dunkin’ Donuts locations throughout New Jersey and New York to pay nearly $200,000 for overtime violations.  The USDOL found that the franchise’s store managers were not properly treated as exempt employees because they were not paid on a salary basis.

In order to qualify for what are known as the FLSA’s “white collar” overtime exemptions, the employee must satisfy both the “duties test” and the “salary basis test.” Under the salary basis test, the employee must receive a guaranteed salary of at least $455 per week and this salary cannot be reduced because of the quantity or quality of the employee’s work. In the Dunkin’ Donuts case, despite their management duties (which would pass the duties test), the store managers’ compensation was reduced whenever they worked less than 60 hours per week. This violated the salary basis test and converted the store managers into hourly employees.

This case underscores the importance of periodic self-audits to ensure compliance with the FLSA and state wage and hour laws. One of the areas tested during a compliance audit is whether exempt employees are being properly paid on a salary basis.