We hear a version of this from founders all the time, whether she owns a wellness clinic or a floral studio: "My Pilates instructors get paid per class. My dietitian gets a flat rate per patient. My lead designer gets paid a day rate per wedding, plus a bonus when we land a big one. They're talented, they're paid well, and they know the deal. I don't owe overtime, right?"

Usually, you do. Under the federal Fair Labor Standards Act (FLSA), how you label someone's pay doesn't decide whether overtime is owed. Two questions do: is the employee exempt, and if not, what is their regular rate of pay? A per-client, per-class or project rate doesn't help you on either one.

Question 1: Is the employee exempt from overtime?

Probably not. Every employee who works more than 40 hours in a workweek is owed overtime unless they fall into a specific exemption. Paying per client, per class or per project isn't one. And if an employee challenges the classification, it's the employer's burden to prove the exemption applies.

The exemption owners most often have in mind is the "professional" exemption. It has real requirements:

• A true salary of at least $684 per week. A fixed amount that doesn't go up or down with the clients seen or classes taught. A per-client or per-class rate, by definition, does.
• Advanced knowledge in a field of science or learning, customarily gained through a prolonged course of specialized academic study.

Specialized training is not the same thing. The exemption does not cover knowledge gained through an apprenticeship, a certification course or training in routine physical processes. Certified personal trainers, Pilates and yoga instructors, massage therapists and floral designers have real skill. That doesn't make them exempt. Courts have found that dietitians, however, can be exempt. 

Being "on salary" isn't enough. One of the most common FLSA myths is that salaried employees never get overtime. Salary is only one requirement. The employee's actual duties also have to fit an exemption, or you owe overtime no matter how they're paid.

Working at a desk doesn't make someone exempt. Owners often assume office staff are "salaried" and therefore exempt. The administrative exemption requires the $684 weekly salary, a primary duty of office work directly related to managing the business or its general operations, and real discretion and independent judgment on matters of significance. Bookkeepers, office managers who mostly process paperwork, schedulers, data entry staff and customer service reps usually don't meet it. Following company procedures or applying set standards, however skillfully, isn't independent judgment (§ 541.202).

Neither does a license. A job title or credential doesn't decide exemption. Salary and actual duties do. Healthcare and wellness practices show where the line usually falls:

• Generally exempt, if paid a true salary and doing the professional work: registered nurses, nurse practitioners and physician assistants who are actually practicing, registered dietitians counseling patients in a clinical setting, and medical technologists with four years of study including accredited medical technology training.
• Generally non-exempt, even on a salary: licensed practical nurses, medical assistants and aides, dietetic technicians and nutrition aides, x-ray and ultrasound technicians, and medical records or front desk staff. Working with medical technology every day isn't the same as advanced professional knowledge.

Practicing doctors and lawyers are a narrow exception, exempt even without a salary. For nearly everyone else, the salary and duties tests both apply.

Two examples show how this plays out:

• A registered dietitian paid per patient is not exempt, no matter her credentials. On paper, an RD is a strong candidate for the learned professional exemption: the role requires an accredited degree in dietetics and a national credentialing exam, which courts treat as the dividing line (Isett v. Aetna Life Insurance Co., 2d Cir. 2020). But the exemption also requires a true salary of at least $684 a week. Pay her per patient or per consult, and her pay rises and falls with her caseload. That fails the salary basis test, so the exemption is off the table and every hour over 40 is owed overtime. Her degree never comes into play.
• A Pilates instructor is almost always non-exempt. Instructor certifications come from short training programs, not a prolonged course of academic study. The teacher exemption doesn't help either, because it covers teachers at schools, not fitness studios. Studios that pay per class run into a second problem: required prep time, staff meetings and travel between locations during the day all count as hours worked. Once those hours are counted, per-class pay can dip below minimum wage, and a busy instructor can cross 40 hours without anyone noticing.

Pay level doesn't fix it either. In Helix Energy Solutions Group v. Hewes (2023), the U.S. Supreme Court held that an offshore supervisor earning over $200,000 a year on a day rate was still owed overtime, because a day rate isn't a salary.

Switching them to a 1099 makes it worse, not better. Some owners try to sidestep overtime by calling per-class or per-client workers independent contractors. If you set their schedule, pricing and how the work gets done, they're likely employees under the law. Then you owe the overtime plus unpaid payroll taxes and penalties. We explain how that compounds in The Importance of Properly Classifying Employees. 

Question 2: How much overtime do you owe?

Overtime is based on the employee's regular rate of pay, not the rate you agreed to. You can pay by the hour, the day, the piece or the project. Whatever the method, the FLSA converts it to an average hourly rate for each workweek, and overtime is calculated from that (DOL Fact Sheet #56A).

The formula:

Total compensation for the workweek (minus statutory exclusions) ÷ total hours actually worked = regular rate

Two points trip owners up:

• The regular rate is based on facts, not paperwork. An agreement that says "your per-class rate includes overtime" doesn't change the math.
• Bonuses count. Pay that employees know about and expect is "nondiscretionary" and goes into the regular rate. That includes job completion bonuses, attendance bonuses, hazard pay and per-class or per-client incentives (like a bonus for every class that fills).

Only a short list of payments can be left out: gifts and special-occasion payments, vacation, sick and holiday pay, expense reimbursements, infrequent "show-up" pay, unscheduled call-back pay, and truly discretionary bonuses.

Here's a week for a Pilates instructor paid $60 per class, with a $15 bonus for every class that fills. She teaches 24 classes, but required prep time, a staff meeting and travel between studios bring her to 46 hours worked:

The class pay already covered straight time for every hour she worked, so the overtime owed is the extra half. That's $103.70 a week the studio owner thought was covered, and it only shows up if someone is tracking the non-class hours.

If you've already been paying this way

Don't just switch pay plans and hope. Figure out what's owed so you can make an informed decision about fixing it.

An FLSA claim reaches back two years, or three if the violation was willful. On top of unpaid overtime, employees can recover an equal amount in liquidated damages plus their attorney's fees. In the example above, $103.70 a week becomes nearly $11,000 per instructor over two years, or close to $22,000 once it's doubled. Multiply that by every instructor on your schedule.

To calculate your exposure, you (or a wage-and-hour economist) will need, for each employee:

• Hours worked over 40 in each workweek for the lookback period
• Total compensation paid each week, including every bonus and premium
• Any overtime already paid, which is credited against what's owed

If you don't have reliable time records, start keeping them now. When an employer can't produce hour records, courts generally accept the employee's reasonable estimate.

What to do instead

You can keep pay predictable without the overtime risk:

• Pay hourly with overtime. The simplest option for instructors, front desk staff and floral designers.
• Keep the per-class or per-client rate, but track every hour. Count prep, meetings and travel, then pay the overtime premium each week it's owed.
• Move qualifying staff to a true salary. Only for employees, like a salaried registered dietitian, whose duties actually meet an exemption.

For employees whose hours swing from week to week, a fluctuating workweek arrangement can lower your overtime cost, if it's set up correctly. We walk through how it works in Hours All Over the Place? How the Fluctuating Workweek Can Lower Your Overtime Cost.

Talk to us before you change your pay plan

If your employees are paid per class, per client or per project, it's worth a review. We'll look at whether anyone actually qualifies for an exemption, how your bonuses affect the regular rate, and which pay structure fits your business. If there's past exposure, we'll help you size it and decide how to address it.

Business Law Group advises growth-stage companies across Louisiana on wage-and-hour compliance and pay structures. Schedule a consultation to get started.

This article is general information, not legal advice. Reading it does not create an attorney-client relationship. Wage-and-hour rules depend on your specific facts, so talk with a lawyer before changing how you pay employees