Employment laws strictly determine how you pay your employees. Even being rich and famous doesn't exempt you from that.
Can you imagine what it would be like to have a personal assistant who is on call 24 hours a day? So, for instance, if you are watching a DVD at 3:00 a.m. and decide you want to watch a different one, you don't have to do the actual work of changing it yourself. Wouldn't that be awesome? (Errgh, no, but I digress.) Well, Lady Gaga (real name: Stefani Germanotta) got that for a mere $75,000 a year.
What could go wrong? Well, it turns out that $75,000 a year isn't enough to buy a super loyal assistant who won't decide, one day, that this whole 24 hour a day, 7 day a week job, isn't worth the hassle. And, furthermore, she was being paid unfairly. So, she decided to sue. And a NY Federal Court determined that the case can go forward.
Yes, she agreed to the salary at the beginning, but here's where the law kicks in. The federal government places strict rules around pay and regardless of what you and your pop star of the day decide, you must be paid according to the law, regardless of what you agreed to.
Assistant and former friend Jennifer O'Neill is what is called a non-exempt employee. This status is based on the nature of her responsibilities, not on the agreement she made with her employer. Which means, undoubtedly, the courts will determine that Ms. Germanotta (and Mermaid Touring Compay) owe Ms. O'Neill overtime to the tune of time-and-a-half for 16 hours out of every day.
Even though Ms. O'Neill wasn't with Lady Gaga all day every day, she was always on call. That point isn't disputed at all. Gemanotta testified: You don't get a schedule. You don't get a schedule that is like you punch in and you can play [badword] Tetris at your desk for four hours and then you punch out at the end of the day. This is when I need you, you're available.
This means that Ms. O'Neill never had time that wasn't subject to the whims of her employer, which means that she was always working. And because her tasks, such as fixing hair, having ice packs ready, making tea, and changing DVDs, do not qualify for a professional (or any other) exemption, she is owed overtime.
What does this have to do with your business? Most small business owners don't have employees on call 24 hours a day, nor do they wear dresses made out of meat, but all are subject to the Fair Labor Standards Act. You can't just decide what and how to pay people.
Unless your employees meet the very strict standards for exemption, you have to pay them overtime for every hour over 40 per week. (And in some places, over eight in one day) And furthermore, you have to do it going backwards. You may have negotiated what you think is a perfectly good salary, but unless it complies with federal, state and local laws, your employees can come back and sue for back overtime.
The default pay structure for all your employees should be hourly with overtime, unless you can confidently say the person qualifies for an exemption. When in doubt, hire an expert to help you evaluate. You may think it's saving you money, but in the long run, your employee may take you to court. And unless you have strong evidence that their responsibilities make them exempt, you'll owe big bucks. And that's not fiscally responsible.