Biweekly Predetermined Pay with Hourly “Accounting” Satisfies § 541.602(a): Fourth Circuit Clarifies Salary-Basis for Highly Compensated Fire Chiefs

1. Introduction

In Anthony Kelly v. City of Alexandria (4th Cir. Dec. 31, 2025), ten current and former battalion chiefs of the Alexandria Fire Department sued the City under the Fair Labor Standards Act (“FLSA”), seeking unpaid overtime for what they characterized as “off-schedule” hours.

The core dispute was not whether the chiefs worked additional hours, but whether the City could invoke the FLSA’s overtime exemptions—specifically the “highly compensated employee” exemption in 29 C.F.R. § 541.601. As framed on appeal, the case turned on one gateway requirement: whether the chiefs were paid on a “salary basis.”

The pay system was unusually complex. The City set an annual base salary, converted it into different “hourly rates” (administrative vs. operational), and then paid: (i) scheduled hours worked, (ii) scheduled hours not worked by charging paid leave, and (iii) off-schedule hours worked at the same hourly rate. To prevent large swings for operational chiefs (whose schedules vary across pay periods), the City guaranteed operational chiefs pay for at least 106 hours per 14-day pay period, and administrative chiefs at least 80 hours.

The district court granted summary judgment to the City, holding the chiefs exempt. The Fourth Circuit affirmed, but clarified that the district court used the wrong salary-basis test—even though the City still prevailed.

2. Summary of the Opinion

The Fourth Circuit held:

• The district court applied the incorrect salary-basis regulation by analyzing the pay plan under 29 C.F.R. § 541.604(b) (hourly/daily/shift pay with a guarantee plus a “reasonable relationship”).
• Properly understood, the chiefs were better analyzed under 29 C.F.R. § 541.602(a) because they received a predetermined amount every pay period (biweekly) that was not subject to reduction based on work quantity/quality, with additional compensation for extra work permissible under 29 C.F.R. § 541.604(a).
• The “predetermined amount” was not the City’s annual “base salary” figure in personnel records; it was the guaranteed pay equivalent to 80 hours (administrative schedule) or 106 hours (operational schedule) each pay period.
• Using paid leave to “true up” pay to the predetermined amount did not defeat salary-basis status, so long as the employee still received the full predetermined pay.

Because the City did not make improper deductions from the predetermined amount, the chiefs were paid on a salary basis, and the City was entitled to summary judgment.

3. Analysis

3.1 Precedents Cited

Helix Energy Sols. Grp., Inc. v. Hewitt, 598 U.S. 39 (2023)

Helix supplied the opinion’s analytical framework: the “basis” of pay means the unit of time used to calculate pay, and that choice determines which salary-basis regulation applies. The Fourth Circuit relied on Helix to distinguish:

• § 541.602(a): employees paid weekly (or less frequently) via a preset amount not subject to reduction.
• § 541.604(b): employees paid hourly/daily/shift, requiring both a weekly guarantee and a “reasonable relationship” between the guarantee and usual earnings.

Critically, the Fourth Circuit read Helix as focusing on functional reality—whether pay is truly “count-the-units” (hours/days/shifts) or instead a preset amount with permissible add-ons—not on whether an hourly rate appears in payroll calculations.

McGuire v. City of Portland, 159 F.3d 460 (9th Cir. 1998)

The Fourth Circuit used McGuire to reject the idea that an “intricate payroll accounting system” that converts salary into hourly figures necessarily makes employees hourly workers. This supported the court’s key move: treating the hourly-rate lines on pay stubs as administrative accounting rather than the legal “basis” of compensation.

Silloway v. City of San Francisco, 117 F.4th 1070 (9th Cir. 2024), cert. denied, 145 S. Ct. 1432 (2025)

Silloway reinforced a practical evidentiary rule: courts should “look beyond conclusory language in contracts” and examine how employees are actually paid. The Fourth Circuit used that principle to reject the chiefs’ attempt to treat the City’s quoted annual base salary in personnel documents as the controlling “predetermined amount.”

Anani v. CVS RX Servs., Inc., 730 F.3d 146 (2d Cir. 2013)

Cited alongside Silloway, Anani supported the proposition that a preset amount paid on a weekly-or-less-frequent basis, plus additional compensation, can satisfy the salary-basis rules without converting the employee into an hourly worker.

Mr. Dee's Inc. v. Inmar, Inc., 127 F.4th 925 (4th Cir. 2025)

This case supplied the appellate procedural tool: the Fourth Circuit could affirm on an alternative ground even while disagreeing with the district court’s regulatory path (i.e., affirming under § 541.602(a) rather than the district court’s § 541.604(b) approach).

Emmons v. City of Chesapeake, 982 F.3d 245 (4th Cir. 2020)

Provided the de novo standard of review for summary judgment and the familiar “no dispute of material fact” framing.

E.M.D. Sales, Inc. v. Carrera, 604 U.S. 45 (2025)

Established the burden and standard of proof for FLSA exemptions: the employer bears the burden to prove the exemption by a preponderance of the evidence. This mattered because the City had to prove the chiefs were paid on a salary basis.

Other authorities the opinion treated as relevant

• Gentry Hamilton-Ryker IT Solutions, LLC, 102 F.4th 712 (5th Cir. 2024) and Hughes v. Gulf Interstate Field Services, Inc., 878 F.3d 183 (6th Cir. 2017): cited to note that the “highly compensated employee” exemption has additional criteria beyond salary basis, though not disputed here.
• Kelly v. City of Alexandria, No. 22-cv-196, 2023 WL 3981272 (E.D. Va. June 13, 2023): the decision under review and the source of payroll-record findings (e.g., minimum biweekly hours paid).
• “Coates, 961 F.3d at 1048”: referenced for the concept that “guarantee”/salary-basis analysis looks to whether there is a practice of improper salary deductions (the Fourth Circuit agreed with the substance of the district court’s no-deduction finding).
• Department of Labor materials:
  • Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, 69 Fed. Reg. 22122 (Apr. 23, 2004)
  • U.S. Dep't of Labor, Wage & Hour Div., Opinion Letter (Jan. 16, 2009), 2009 WL 649020
  • U.S. Dep't of Labor, Wage & Hour Div., Opinion Letter (Nov. 8, 2018), 2018 WL 5921453
  These were used chiefly to validate leave-bank deductions and, in background, the “reasonable relationship” concept.

3.2 Legal Reasoning

A. Choosing the correct salary-basis test: § 541.602(a) vs. § 541.604(b)

The district court treated the chiefs as hourly-rate workers because when they worked beyond 80/106 hours, pay increased with hours. The Fourth Circuit rejected that as an overreading. Under its approach, the correct question is functional: Is the employee’s pay fundamentally a preset amount that does not turn on counting hours, with extra compensation permitted, or is it pay-per-unit with a separate guarantee?

The court emphasized several features inconsistent with true hourly pay:

• The chiefs were paid at least 80/106 hours per pay period even if they worked fewer hours—meaning they were not “paid for each hour and no others.”
• The predetermined amount was paid without needing to “count” hours after-the-fact to determine base pay.
• When chiefs worked fewer scheduled hours, the City used paid leave to maintain the predetermined amount—again inconsistent with the “docked for time he takes off and uncompensated for time he is not needed” logic that typifies hourly work.

On that characterization, § 541.602(a) (salary paid weekly or less frequently) was the better fit, and § 541.604(a) permitted the City to layer on additional straight-time compensation for off-schedule hours without destroying salary-basis status.

B. Identifying the “predetermined amount”

The chiefs tried to anchor the salary-basis inquiry to the City’s annual “base pay salary” figure. The Fourth Circuit refused. Consistent with Silloway v. City of San Francisco, the court treated payroll reality as controlling: the “predetermined amount” was the biweekly guarantee equivalent to 80 or 106 hours at the applicable rate, not the annual number in HR records.

C. Deductions and leave banks

Salary-basis under § 541.602(a) is defeated by improper deductions from the predetermined amount based on variations in work quantity or quality. The court found no such improper deductions.

The opinion also addressed the “leave” mechanism: the City charged paid leave to cover scheduled hours not worked, thereby keeping total pay at the predetermined amount. The Fourth Circuit endorsed this practice as consistent with long-standing Department of Labor guidance, so long as employees still receive the full predetermined pay.

D. The “annual hours” anomaly (2,912) and alleged “illegal deductions”

Operational hourly rates were derived from annual salary divided by 2,912 hours, but actual scheduled hours could vary year to year due to the nine-day cycle. Some chiefs therefore received slightly less over a year than the annual salary figure used for rate-setting. The court held this did not show an improper deduction from the predetermined biweekly amount, because § 541.602(a) polices reductions in the predetermined periodic salary—not deviations from an annualized figure that was not the legally relevant “predetermined amount.”

3.3 Impact

A. Doctrinal impact: a clarifying boundary after Helix

The opinion’s practical rule is that an hourly rate used for payroll computation (even one prominently displayed on pay statements) does not, by itself, trigger § 541.604(b). What matters is whether the employee’s base compensation is truly unit-counted (hours/days/shifts) or instead a predetermined amount paid weekly or less frequently, with permissible add-ons under § 541.604(a).

This narrows the circumstances in which plaintiffs can force employers into § 541.604(b)’s “reasonable relationship” requirement by pointing to “hourly” calculations in payroll systems.

B. Operational impact for public-sector fire departments (and similar employers)

Fire departments often operate with 28-day work periods under 29 U.S.C. § 207(k), staggered shifts, and payroll systems that convert salaries into hourly equivalents for leave tracking, overtime accounting, and budgeting. The decision provides a litigation roadmap:

• Employers can preserve salary-basis status if they consistently pay a guaranteed, predetermined amount each pay period regardless of hours worked.
• Paying additional straight-time amounts for off-schedule work can fit within § 541.604(a), avoiding § 541.604(b) so long as the base pay is not truly unit-counted.
• Leave-bank deductions are not fatal if the employee still receives the full predetermined salary amount.

C. Litigation and compliance signals

The City prevailed largely because it “brought receipts”: payroll records showing the guaranteed minimum pay was in fact always paid. Future exemption disputes in the Fourth Circuit are likely to turn on the same concrete evidence—what was actually paid each pay period and whether any improper deductions occurred.

4. Complex Concepts Simplified

• “Highly compensated employee” exemption: A regulatory FLSA overtime exemption for employees meeting pay and duty thresholds; one mandatory component is being paid on a salary basis. (Other criteria existed but were not disputed.)
• “Salary basis”: Being paid a preset amount each week (or less frequently) that is not reduced because you worked more or less—subject to limited, specific deduction rules.
• § 541.602(a) vs. § 541.604(b):
  • § 541.602(a) applies when the employee receives a predetermined weekly-or-less-frequent salary amount.
  • § 541.604(b) applies when pay is fundamentally hourly/daily/shift-based and requires a separate guarantee plus a “reasonable relationship.”
• “Additional compensation” (§ 541.604(a)): Extra pay on top of a salary (including straight-time for extra hours) that does not destroy exempt status, as long as the employee still receives the guaranteed salary amount.
• Pay period vs. work period: A “pay period” is when paychecks are issued (here, 14 days). A “work period” for firefighters under § 207(k) can be longer (here, 28 days) for calculating overtime thresholds. Salary-basis analysis focuses on the periodic salary guarantee, not the overtime work-period length.
• Charging paid leave: An employer can subtract from a leave bank when an exempt employee takes time off, without violating salary basis, if the paycheck still reflects the full predetermined salary amount.

5. Conclusion

Anthony Kelly v. City of Alexandria affirms the City’s FLSA exemption victory but, more importantly, clarifies how courts should choose between § 541.602(a) and § 541.604(b) after Helix Energy Sols. Grp., Inc. v. Hewitt. The Fourth Circuit signaled that a payroll system’s use of hourly rates, standing alone, does not convert employees into hourly workers for salary-basis purposes when the employer consistently pays a predetermined amount each pay period and merely adds permissible extra compensation for additional work.

The decision strengthens the principle that salary-basis status is determined by pay practice and deduction reality—verified by payroll records—rather than by labels in HR documents or the presence of an “hourly” figure in payroll calculations.