Is it a good idea to compensate an employee based solely on the number of hours worked, with no guaranteed minimum, if that employee would otherwise be exempt from overtime?  The answer is no.  Negri v. Koning & Associates (May 16, 2013, H037804), ___ Cal.App.4th ___.  That's because, to be exempt from overtime, employees must perform specified job functions in a particular manner and must also receive a "salary," not an indeterminate sum based solely on the amount of hours they work. 

Negri was an insurance claims adjuster at Koning & Associates who was paid $29 an hour with no minimum guarantee.  He worked for Koning for 66 weeks, and estimated that he worked approximately 20 hours a week as overtime.  When Negri sued Koning for overtime pay, Koning argued that Negri was exempt from overtime under a 2011 Supreme Court decision which held that, based on the job functions performed by an insurance claims adjuster, the adjuster was an exempt employee.  Applying that decision, the trial court found that Negri was exempt and therefore not entitled to overtime.  The Court of Appeal reversed. 

Under California Labor Code Section 515, to be exempt from overtime, an employee must perform specified duties in a particular manner and be paid “a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.”  Even though Negri's job duties would have rendered him exempt, the Court of Appeal had little difficulty in concluding that Negri wasn’t exempt because he didn’t earn a "salary":  he wasn’t paid a predetermined amount based on the number of hours worked.  His employer therefore owed him overtime – a result which could have been avoided if Koning had paid Negri a guaranteed salary.

If you’re considering creative ways to pay your employees, you should consult with counsel beforehand.