5.4

Alternate pay methods

Fee basis and minimum guarantee plus extras: two structures, one salary floor

Not every exempt employee is paid the same flat weekly check. As covered in Chapter 2, the salary basis test asks whether a predetermined amount is guaranteed regardless of hours or output — but the regulations recognize more than one way to build that guarantee. An administrative, professional, or computer employee can be paid on a fee basis instead of a straight salary, and any exempt employee’s pay can be structured as a minimum weekly guarantee plus additional compensation on top. Both keep the exemption intact, but only if the underlying guarantee still clears the required floor when tested on its own terms.

A fee basis is narrower: it is available to administrative, professional, and computer employees — but not to executives, who qualify on salary basis alone — and it means an agreed sum paid for a single, unique job regardless of how long that job takes — not a rate tied to hours or days worked, and not the same payment repeated over and over for identical work. To confirm a fee meets the salary floor, § 541.605 projects the fee rate to a 40-hour week: an artist guaranteed $350 for a picture that takes 20 hours to complete clears the $684 weekly minimum (the minimum salary level for exemption introduced in Chapter 2), because that rate would yield $700 if scaled to 40 hours.

A minimum guarantee plus extras works differently and reaches further, since § 541.604 does not limit it to a particular exemption category. An employer can guarantee at least $684 a week (the minimum salary level for exemption, per the salary basis test introduced in Chapter 2) paid on a salary basis and add commission, a percentage of sales or profits, or extra pay for hours beyond the normal workweek — paid as a flat sum, a bonus payment, a straight-time hourly amount, time and one-half, or any other basis. § 541.604(a) also lists paid time off as its own distinct permissible form of additional compensation, alongside those payment bases, rather than as a rate computed from them. None of this disturbs the salary basis. Pay can also be computed by the hour, day, or shift. The employer must still guarantee at least the minimum weekly amount for any week worked, and a reasonable relationship must exist between that guarantee and what the employee usually earns at the assigned rate — for example, the $725 weekly guarantee against $210-per-shift earnings for four or five shifts. That reasonable-relationship check applies only when pay is computed hourly, daily, or by shift — it does not apply to, say, a salaried store manager whose guaranteed weekly salary exceeds the salary level and who also earns a sales commission that some weeks equals or outpaces the guarantee itself.

Fee basis

Available to administrative, professional, and computer employees (§ 541.400(b)) — not to executives, who qualify on salary basis alone (§ 541.100(a)(1); § 541.605(a)). The employee is paid an agreed sum for a single, unique job regardless of how long it takes — not a rate tied to hours or days worked, and not a payment repeated over and over for identical work.

To confirm the floor is met, project the fee rate to a 40-hour week: an artist guaranteed $350 for a 20-hour picture clears the $684 minimum, since that rate yields $700 over 40 hours.

Minimum guarantee plus extras

Available to exempt employees generally, not just one category. A guaranteed salary of at least $684 a week (the minimum salary level for exemption, per the salary basis test introduced in Chapter 2) can be topped up with commission, a percentage of sales or profits, or extra pay for hours beyond the normal workweek — paid as a flat sum, a bonus payment, a straight-time hourly amount, time and one-half, or any other basis. § 541.604(a) also lists paid time off as its own distinct permissible form of additional compensation, not a rate computed from those bases. None of this disturbs the salary basis.

Pay can also be computed hourly, daily, or by shift if the employer still guarantees at least $684 for any week worked, and the guarantee bears a reasonable relationship to the employee’s usual earnings at that rate — for example, a $725 guarantee against $210 per shift for four or five shifts. That check applies only when pay is computed by the hour, day, or shift; it does not apply to a salaried store manager who also earns a sales commission on top of a guaranteed weekly salary above the salary level.

Key terms

fee basisminimum guarantee plus extrasreasonable relationship testweekly guaranteeextra compensation