Is it better to be paid a salary or eligible for overtime?

“I was disappointed to learn that I was paid the same as the guy checking receipts at Walmart.”

He said in his annual self-review after getting a big, fat check.

Once upon a time there was an ambitious young lad with a bright future in finance. 

He worked at a small, boutique investment firm. 

When he started, he was offered a salary a little bit over the New York salary minimum.

Problem is, New York’s salary minimum had gone up before he got a raise. 

For nearly a year, he was earning $63,000/yr when New York City said he was eligible for overtime if he earned less than $64,350.

When you catch an FLSA misclassification, there are two ways to handle it:

1. Estimate the amount of overtime they would have earned during that time and give them backpay

2. Give them a raise, backdate it, and pay out the prorated difference

Which one you choose depends on their job, how much control they have over their work, and which payout is more fair to their situation.

Jeremiah had taken on new responsibilities recently, so we decided to give him a raise to above the salary minimum, but pay out his backpay as overtime.

He estimated how many weekly hours he’d worked for the past year,

attested that the hours were accurate to the best of his recollection,

and signed a form that said the change had been explained to him and agreed that he’d been compensated fairly.

Then his performance review came around.

Now he felt shafted. Not because he thought his pay was unfair, but because he’d been misclassified.

He’d been earning twice what the guy checking receipts at Walmart was earning

had received an off-cycle raise 

and a lump sum payment on top of that.

He didn’t feel underpaid until the oversight made him feel undervalued.

He was working hard. Doing business. 

Learning from his more experienced colleagues every day.

He wore a tie to work.

He also had access to payroll and knew what everyone was paid.

He saw other people who worked hard and were paid little compared to their more experienced colleagues.

But they all worked the same schedule.

In fact, the bossy people with the big paychecks had more control over when they worked than the younguns. 

Those fat cats didn’t understand what it was like to bust your butt like he had.

FLSA was created to make wages fair. When done well, it does.

But an unintended consequence of paying some people by the hour and others by their output is a perceived hierarchy.

For those on the bubble, both sides feel unfair. 

Paid by the hour = more pay with less control Paid salary = less pay with more chaché

Many ambitious people early in their careers would prefer the status of salary to the higher pay of a nonexempt hourly position.

Are they right?

Who am I to say? I’m old. I just want to make sure they’re paid fairly.

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Do you have people on your team who are stuck on the FLSA fence? Need help navigating it? We can help.

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