Are You Really A Highly Compensated Employee?

The Fair Labor Standards Act provides for overtime pay protections for certain employees. ‘Highly compensated employees,’ as defined by the act, are exempt from this protection. The First Circuit tackled the issue as to whether a regularly administered $1,000 stipend paid to employees qualifies as paying employees on a salary basis, thus qualifying plaintiffs as highly compensated employees.

This case involves two plaintiffs who were hired as project managers by a corporation and were paid over $100,000 a year. During a typical pay week, their salary was calculated by multiplying the number of hours billed to clients by $40 to $60. The corporation did not pay their project managers an overtime rate for hours worked over 40 hours a week. However, the corporation did guarantee a minimum weekly salary of $1,000 a week. The issue in this case boiled down to whether that $1,000 ‘stipend’ meets the requirements for a salaried employee as determined by the FLSA.

“The FLSA requires employers to pay nonexempt employees at a higher rate for hours worked beyond 40 hours in a week. The FLSA exempts from its overtime protection ‘any employee employed in a bona fide executive, administrative, or professional capacity.’ The FLSA implementing regulations further provide that this exemption applies to ‘highly compensated employees’ who (1) ‘customarily and regularly perform[] any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee’; (2) receive at least $100,000 in total annual compensation; and (3) receive “at least $455 per week paid on a salary or fee basis.” 29 C.F.R. § 541.601(a), (b)(1).

The court held that the regular and continuous weekly $1,000 payment was in fact a salary. Absent any evidence of diminution based on working less than 40 hours a week, the project managers were considered highly compensated employees under the FLSA, exempt from overtime pay protections. For highly compensated employees expecting overtime pay, it is important to examine whether you are paid a stipend determinable on hours worked or a flat salary. The difference could very well determine whether you are owed overtime pay or not.


Litz v. St. Consulting Group, Inc., No. 13-2437, 2014 U.S. App. LEXIS 21055, (1st Cir. Nov. 4, 2014)



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