Extra Pay May Not Defeat Exempt Status for Fire Dept. Executive

Today’s FLSA Question: I am the HR director for a suburban town. The fire chief is going to be out on medical leave for several months. The senior assistant chief will be moved up to fill in for the chief in his absence. Senior fire department staff (chief and both assistants) are overtime exempt. Even though it is not required, the city would like to give the assistant chief a $100-per-week stipend for the time and effort involved in performing the chief’s duties during this period. Is there a provision within the FLSA or the regulations that allow the city to give the assistant chief extra money without losing the assistant chief’s exempt status? If yes, can that money be paid as a flat-rate weekly stipend?

Yes, there is a Department of Labor (DOL) regulation that is very relevant for your situation.

It is very common for fire chiefs and other higher-level administrative officers within the fire department to be considered overtime-exempt executives. There are strict requirements within the FLSA and DOL regulations on how these exempt employees must be compensated. It is possible for an otherwise exempt employee to “lose” exempt status if these regulations are not followed. There is also a provision within DOL regulations that allows employers to give overtime-exempt employees additional pay for additional work, without losing the employees’ exempt status. The regulation, which is entitled “Minimum guarantee plus extras” can be found at 29 CFR §541.604. In part, it states:

An employer may provide an exempt employee with additional compensation without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis. Thus, for example, an exempt employee guaranteed at least $455 each week paid on a salary basis may also receive additional compensation of a one percent commission on sales . . . Similarly, the exemption is not lost if an exempt employee who is guaranteed at least $455 each week paid on a salary basis also receives additional compensation based on hours worked for work beyond the normal workweek. Such additional compensation may be paid on any basis (e.g., flat sum, bonus payment, straight-time hourly amount, time and one-half or any other basis), and may include paid time off.

As for the second part of the question, anyone who is familiar with the FLSA and the regulations pertaining to exempt executives may be surprised to see the phrase “additional compensation may be paid on any basis.” The regulations place significant restrictions on how employers can reduce an exempt executive’s salary, yet they place very little control over how employers may choose to increase an exempt executive’s salary. Under the regulations, paying a flat weekly stipend would be acceptable. You should also run this question by your local counsel and make sure there are not state or local wage laws that could affect this analysis as well.