If your FLSA exemption strategy depends on a minimum one- or two-day guarantee, this decision should get your attention.
The Fifth Circuit just rejected that structure under the statute’s salary-basis test.
TL;DR: To qualify for the executive, administrative, or professional exemption under the Fair Labor Standards Act (FLSA), an employee must be paid a true weekly salary, meaning a predetermined amount that covers the week regardless of how many days are worked. In the Fifth Circuit, a “retainer” guaranteeing only one or two days of pay if any work is performed during the week does not meet that standard. The employer avoided willfulness and liquidated damages because it relied on counsel and engaged with the Department of Labor, but it still lost on liability.
📄 Read the Fifth Circuit’s decision
A post-audit pay change that still failed
After a Department of Labor audit, the employer revised its compensation structure for certain workers it classified as exempt from overtime.
Under the new plan:
- If an employee performed any work during the week, the employee was guaranteed one or two days of pay.
- If the employee worked beyond that minimum, the employee was paid the normal hourly or day rate for all hours worked.
The company labeled that minimum a “retainer.”
The Fifth Circuit said that was not a salary.
A salary has to cover the week, not just the day
To avoid overtime under the Fair Labor Standards Act (FLSA), employers must satisfy three requirements for the white-collar exemptions: duties, salary level, and salary basis.
The salary-basis requirement means the employee receives a predetermined weekly amount that does not fluctuate based on the quantity of work performed. The employee is paid for the week, not for the days or hours within it.
The Fifth Circuit emphasized that payment on a weekly basis requires a true weekly rate. Just as an hourly employee is paid for all work performed in the hour, a salaried employee must be paid for all work performed in the week. A one- or two-day guarantee does not do that. It compensates only part of the week and leaves the total amount dependent on how much the employee works.
That makes the structure a day-rate system with a minimum floor, not a weekly salary. Under Fifth Circuit law, that fails the exemption.
What this means for employers
This case involved a staffing company, but the lesson applies well beyond that industry.
1. Review hybrid and day-rate models carefully.
If your organization uses day-rate hybrids, minimum-day guarantees, retainer-plus-hourly structures, or partial weekly floors, take a hard look at them. If the compensation operates like a day-rate system, a court may treat it like one. Labels will not save it.
2. A post-audit “fix” must actually fix the problem.
Changing the name of the pay structure is not enough. The substance of the guarantee matters. A weekly salary must cover the week.
3. Good-faith compliance efforts matter.
Although the employer lost on liability, it avoided willfulness and liquidated damages. The record showed:
- A prior DOL audit
- A revised compensation structure afterward
- Reliance on advice of counsel
- An internal questionnaire analyzing exempt status
- Materials provided to DOL
- No violation finding at the time
That evidence defeated reckless-disregard allegations. The two-year statute of limitations applied, and liquidated damages were denied.
4. Document your analysis.
Audit creative pay models before implementation. Engage counsel. Preserve documentation. Even if a court later disagrees with your classification decision, those steps can materially limit exposure.
5. Do not forget state law.
The Fair Labor Standards Act (FLSA) sets the federal floor, but many states have their own wage-and-hour laws, and some apply stricter exemption standards. A structure that fails under federal law may present even greater risk under state law, including longer limitations periods and different damages schemes.
The bottom line
In the Fifth Circuit, you cannot call it a salary if it is just one day’s pay.
If your organization relies on hybrid or day-rate structures for exempt employees, this decision is worth reviewing before the next audit does it for you.