Are Supervisors Who Earn Less than Subordinates Eligible for Overtime Pay?

​What would happen if a supervisor made less money than his or her employees? Would the supervisor be eligible for overtime pay?

Wage and hour attorneys have different opinions on that topic, but they do agree on one thing: It would be difficult to get employees to move up to supervisor jobs if that would mean they'd make less money.

The situation happens more often than you'd think. There are many professions where it is common for subordinates to be paid more than managers, including sports and entertainment, technical fields such as coding and engineering, and industries with high-earning commissioned salespeople, noted Jason Habinsky, an attorney with Haynes and Boone in New York City. Stockbrokers with wealthy clients might make more than their managers.

Supervisors also might be paid less than subordinates when the hourly workforce is highly paid and works a lot of overtime, such as in construction and shipping, said Steven Suflas, an attorney with Ballard Spahr in Denver and Cherry Hill, N.J.

Lower managerial pay also could arise in health care if hourly nurses raise their incomes with weekend and holiday work and earn a lot of premium pay, noted Lee Schreter, an attorney with Littler in Atlanta.

What Makes a Supervisor Exempt from Overtime Pay?

There's a difference of opinion on whether a difference in compensation would affect the supervisor's exemption from overtime pay.

On one hand, Suflas said, Fair Labor Standards Act (FLSA) exemptions should not be affected because a supervisor earns less than a subordinate. So long as the salary level and job duties tests are met, the exemptions will apply.

The salary-level threshold for the white-collar exemptions is $455 per week. The duties that must be met to satisfy the exemptions vary depending on whether it is the executive, administrative or professional exemption.

[SHRM members-only toolkit: Determining Overtime Eligibility in the United States]

"I have never seen a person's exemption be jeopardized because they make less than another set of employees," said Adam Boland, an attorney with Clark Hill in San Antonio.

On the other hand, said Matt Disbrow, an attorney with Honigman in Detroit, while it is not an automatic violation of exempt status for a supervisor to make less than subordinates, the executive exemption might be jeopardized.

One factor courts consider to determine if a supervisor's primary duty is management for purposes of the executive exemption is the comparative relationship between the supervisor's salary and the wages paid to nonexempt employees, he noted. "The fact that a supervisor makes less than his or her subordinate employees tends to undercut the importance of the position and could be used to argue that the supervisor really is not a true manager but more of a working team leader," he said.

Schreter said that whether lower salary places the executive exemption at risk is "in flux at this point." But she noted that the comparison between the manager's salary and subordinates' is just one of many factors considered when determining a manager's primary duties. Other factors include:

• The importance of the exempt duties as compared with other types of duties.
  
• The amount of time spent performing exempt work.
  
• The individual's relative freedom from direct supervision.
  

Joel Rice, an attorney with Fisher Phillips in Chicago, said he has seen the administrative exemption challenged when a plaintiff's attorney argued that a manager was paid such a low level that the person couldn't be exercising matters of discretion, as required by that exemption's duties tests. However, he added, "nothing in the law says a supervisor has to earn more than a subordinate."

Employee Relations and Succession Planning Concerns

Sal Simao, an attorney with FordHarrison in Berkeley Heights, N.J., asserted that managers earning less than subordinates wouldn't change overtime exemptions but added that it "is a problem from an employee relations perspective."

He noted that in Atlantic City, N.J., it's difficult to recruit pit bosses in casinos because they are exempt and don't receive tips. Often, casino dealers make more than pit bosses because dealers are tipped well. "For HR, this can become a recruiting nightmare."

This challenge might be overcome by offering richer benefits, flexible schedules or other perks.

Still, low supervisor salary disincentivizes a subordinate from working harder to become a supervisor, said Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C.

Sometimes, though, "a company just has to pay more to get a rock-star employee who ultimately ends up making more than the supervisor," said Richard Reice, an attorney with Hoguet Newman Regal & Kenney in New York City. "The communication with the supervisor and getting his or her buy-in will be important."

If subordinates find out they are making more than their bosses, the managers' authority might be undermined, Rice cautioned. Subordinates should know managers are in charge and should be respected, regardless of what they earn, he added.

But Simao said, "The primary issue is really who would want to work as a supervisor for less money."