The application and rules for the federal FLSA salary basis test are often misunderstood and not administered accurately or consistently.
First, let’s understand what the term “salary basis” means. An exempt employee that regularly receives a predetermined amount of base salary each workweek is paid on a “salary basis”. This applies to employees who are determined to be exempt under the federal FLSA exemption tests including both the minimum salary test and qualifying under one of the duties tests (i.e., administrative, executive, professional, outside sales, etc.). The minimum weekly salary that must be paid to ‘exempt’ employees under the federal rules is $455. Please refer to your federal and state wage and hour for exceptions to the salary requirements. In 2018 many states increased the minimum wage and, at the same time increased the minimum weekly salary of ‘exempt’ employees. The salary basis pay requirement for exempt status does not apply to some jobs (for example, doctors, lawyers, and schoolteachers are exempt even if the employees are paid hourly).
Now let’s talk about the Salary Basis Test. An employee’s ‘exempt’ status can be jeopardized if the salary basis test rules are not followed. The Salary Basis test provides rules regarding what pay deductions can and cannot be made to exempt employees’ weekly base salary. Generally, the predetermined weekly salary cannot be reduced because of variations in the quality or quantity of the employee’s work. Except for a few permissible deductions, an exempt employee must receive the full base salary for any workweek in which the employee performs any work, regardless of the number of days or hours worked. This includes any work done remotely such as checking email and voicemail. An employer cannot make deductions from an employee’s predetermined base salary, because of a business slowdown or lack of available work.
The FLSA salary basis test applies only to reductions in monetary amounts. Requiring an employee to charge absences from work to leave accruals is not a reduction in “pay,” because the monetary amount of the employee’s paycheck remains the same.
Full Day deductions from pay are permissible when an exempt employee:
- Is absent from work for one or more full days for personal reasons other than sickness or disability
- For absences of one or more full days due to sickness or disability, if the deduction is made in accordance with a bona fide sick leave or PTO plan, policy or practice of providing compensation for salary lost due to illness
- To offset amounts employees receive as jury or witness fees, or for military pay
- For a partial week worked during the initial or terminal week of employment
- For weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act,
- Deductions in pay are also permitted for intermittent FMLA leave when the weekly base salary is reduced to coincide exactly with the reduced workweek
- When an exempt performs no work for a full workweek.
For the following two permissible deductions, you should have communicated formal policy(s) detailing disciplinary procedures:
- For penalties imposed in good faith for infractions of safety rules of major significance
- For unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions
It is important that as an employer, you have a clearly communicated policy permitting or prohibiting improper deductions from exempt employees’ base salary including a complaint mechanism and reimbursement to employees when improper deductions are made. You should also have a clearly communicated policy for your exempt employees stating that under no circumstances should work be performed during unpaid time off. The exempt status of your employees will be safe as long as you have clearly communicated policies in place, make good faith efforts to comply with the salary basis test and can show that willful violations have not been made. For full details regarding federal FLSA, visit http://www.wagehour.dol.gov and links to your state labor department can be found at http://www.dol.gov/whd/contacts/state_of.htm.
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