The Fair Labor Standards Act (FLSA) requires that employers pay exempt employees on a salary basis, generally thought to mean a fixed amount regardless of hours worked.  But many employers have either considered or implemented programs that pay bonuses to exempt employees who work extraordinary hours (please don’t call it “overtime”!).  Some cautious lawyers worry that such bonuses may undermine the salary basis test for those employees.

A decision of the Eleventh Circuit on August 26, 2010 suggests that those concerns may be unfounded.  In Bell v. Callaway Partners, LLC, No. 10-11086, the court upheld such a bonus program even though the bonus was expressly calculated based on hours worked over 40 by a group of exempt employees.

The named plaintiff, on behalf of a putative class of about 100 accountants, complained about a system under which the employer paid a fixed salary of $1,600 per week, plus a bonus that was calculated based on hours worked during the week over 40, reduced by any hours under 40 per week that the exempt employee had worked in prior weeks.  So if in Week 1 an employee worked 38 hours, he or she would get just the fixed salary; if in Week 2 the employee worked 45 hours, s/he would get the $1600 plus a bonus of three hours’ pay — five hours over 40 in Week 2, less the two hours under 40 worked in Week 1.

Sounds like a risky approach, monitoring the hours worked of exempt employees so closely and calculating bonuses in this way.  But the Eleventh Circuit affirmed summary judgment for the employer, holding that “as long as there is a non-deductible minimum, additional compensation on top of the non-deductible salary is permissible.”  For that proposition the court cited only its decision in Hogan v. Allstate Ins. Co., 361 F.3d 621, 625 (11th Cir.2004) (copy here), which involved a much more traditional salary-plus-commission arrangement.

Though the Bell decision is short, and the discussion of the plaintiffs’ salary basis objection even shorter, the decision offers some comfort to employers who wish to recognize unusual contributions by their exempt employees.