Cheryl J. Lopez
Our firm’s clients frequently inquire about the exempt salary rules their businesses must follow. Human resources audits conducted by our firm also reveal that some employers make improper deductions from exempt employees’ salaries, resulting in violations of the law. Most of the time, these are unintentional compliance violations because the employer simply doesn’t understand the details of the law and the accompanying rules. Human resources professionals frequently hear the term “exempt salary basis” but few people outside the world of HR management know what it means. It’s a term that describes the “base salary requirement” for an employee to be classified as exempt from the minimum wage and overtime provisions of the Fair Labor Standards Act. The Wage and Hour Division of the Department of Labor is responsible for promulgating the white collar exemption classification rules. The salary basis test is only one part of the determination as to whether a job can be classified as exempt. Sometimes employers make the mistake of assuming that a job is exempt simply because the employee is paid a “base salary.” This is a very risky presumption because it is entirely acceptable for nonexempt employees to be paid a base salary yet still be covered by the Fair Labor Standards Act’s minimum wage and overtime requirements. “Exempt salary basis” means regularly receiving a predetermined amount of compensation – weekly or less frequently, such as biweekly, semimonthly or monthly – and not being subject to reductions for variations in the quantity or quality of work performed, or for lack of available work. Exempt employees should receive a guaranteed salary from week to week when any work is performed. A common mistake made by employers is to make deductions from exempt employees’ guaranteed salaries for reasons not allowed under federal law. The Fair Labor Standards Act allows seven exceptions to the guaranteed base salary requirement. If properly followed, the act lets an employer make deductions from an exempt employee’s salary for the following reasons: 1. An absence from work for one or more full days for personal reasons. 2. An absence of one or more full days due to sickness or disability if the employee is covered under a bona fide plan, policy, or practice of providing wage replacement benefits for illnesses. 3. Absences for jury duty, witness duty or military duty when the exempt employee receives some form of payment for the service; employers can reduce the worker’s salary by the amount received for such service. 4. Penalties imposed in good faith for violating safety rules of major significance; a deduction from pay as a penalty for violating a safety rule of major significance can be made in any amount. 5. Unpaid disciplinary suspension of one or more full days imposed in good faith for violations of written workplace conduct rules. 6. Proportionate part of an employee’s full salary paid for time actually worked in the first and last weeks of employment. 7. Unpaid leave taken under provisions of the Family and Medical Leave Act. These rules and exceptions are extremely important. Employers who don’t understand them can inadvertently change an otherwise exempt employee into a nonexempt employee. Lawsuits can be brought by the Department of Labor or by employees, resulting in potential liability for the payment of back wages for missed overtime. Other penalties and fees can be assessed depending on the severity of the violations. Employers can avoid running afoul of these extensive regulations by fully understanding the exempt salary basis test. Read the entire publication at www.whitneysmithco.com/publications.html
Cheryl J. Lopez is a vice president of WhitneySmith Co., a human resources consulting firm based in Fort Worth.