How Do We Pay an Exempt Employee Who Works Part Time?

Compensating an exempt employee who works part-time involves careful consideration of legal requirements, company policies, and the employee’s needs. Here are some best practices to guide this process:

Legal Requirements and Company Policies

1. Understanding Exempt Status: Exempt employees are typically salaried, meaning they are not entitled to overtime pay under the Fair Labor Standards Act (FLSA). However, to maintain exempt status, they must earn a salary that meets the federal or state minimum threshold.

2. Salary Determination: When working part-time, the salary for an exempt employee should be prorated based on the full-time equivalent salary. For instance, if a full-time exempt employee earns $60,000 annually and a part-time schedule is 20 hours per week (half-time), the part-time salary would be $30,000.

3. State Regulations: Be mindful of state-specific regulations that might impose different salary thresholds or conditions for exempt employees.

Calculating Pay for Hours Worked

• Fixed Salary Structure: For part-time exempt employees, you can establish a fixed salary that aligns with their scheduled hours. This ensures consistency and clarity in pay.

• Prorated Salary: Calculate the salary based on the percentage of full-time hours worked. If a full-time position is 40 hours and the employee works 25 hours, they receive 62.5% of the full-time salary.

Implications for Benefits and Overtime

1. Benefits: Determine how part-time status affects benefits like health insurance, retirement contributions, and paid leave. Some companies offer prorated benefits, while others may have different eligibility criteria for part-time employees.

2. Overtime: Exempt employees typically do not receive overtime pay. However, ensure that their job duties align with exempt criteria to avoid misclassification issues.

Compensation Structures Examples

• Standard Salary: Offer a set salary based on the reduced hours compared to a full-time schedule.

• Hourly Rate: In some cases, you might opt to convert the salary to an hourly rate. This should be used with caution to avoid impacting exempt status inadvertently.

• Flexible Schedule: Allow the employee some flexibility in their working hours, provided they meet the agreed-upon part-time hours.

Communicating Changes to the Employee

1. Clear Communication: Discuss the compensation changes in a one-on-one meeting, providing detailed explanations on how the salary is calculated and any impacts on benefits.

2. Documentation: Provide written documentation outlining the salary structure, benefits, and any relevant policies. This ensures transparency and clarity.

3. Feedback: Encourage open dialogue, allowing the employee to ask questions or express concerns, which helps in addressing any misunderstandings.

4. Regular Updates: Keep the employee informed about any potential changes in company policies or state regulations that might affect their compensation.

By following these best practices, companies can effectively manage part-time exempt employee compensation, ensuring compliance, fairness, and employee satisfaction.

This blog does not constitute legal advice and does not address state or local law. You can find a full library of HR and Payroll topics in our HR Resource Center, accessible to all our clients. If you are interested in receiving more information please contact us.