Exempt Employees Part III: Salary Requirements

By Andrew D. Randol - September 20, 2019 - Employment & Labor

In Exempt Employees Part II, our Columbus employment lawyer explained three additional categories of employees who may be exempt: computer employees, outside sales employees, and commissioned employees. In this post, our employment attorney in Columbus discusses exactly what  a “salary” is under the FLSA. Colloquially, salary simply means paying an employee a pre-determined amount of money for their position, rather than requiring the employee to clock in for a set number of hours. However, the FLSA strictly defines what a salary is. It is important that employers do not inadvertently stray from the FLSA’s definition of salary basis or they could risk having their employees be reclassified as non-exempt.

Salary Basis Under the FLSA

Under the FLSA, “an employee will be considered to be paid on a ‘salary basis’ within the meaning of these regulations if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.”[1]

Thus, although many employers like to measure salary on an annual basis, in reality, most employers are paying an employee a weekly salary. The most important rule for employers is that the employee must be paid this weekly salary for “any week in which the employee performs any work without regard to the number of days or hours worked.”[2] Further, unlike hourly positions, employers cannot send an exempt employee home early in order to cur labor costs.

When Deductions in Salary are Permitted

• Absence for Sickness or Disability: Deductions in salary are permitted for sickness or disability only if the employee is absent for one or more whole days from work and the employer has a bona fide plan, policy, or practice of providing compensation for loss of salary occasioned by such sickness or disability.[3] Such plans are typically sick leave policies or short and long term disability programs. This is why it is vital for employers to have such plans in writing. For instance, if an employer has a sick leave policy that permits an employee seven paid sick days per year, then the employer can deduct whole days of salary for an employee who exceeds the seven sick days. If the employer does not have a plan, no deductions from the salary can be made. It is important to note that deductions in salary cannot be made for partial day absences. For instance, if an employee leaves early because he or she is not feeling well, but returns to work the next day, the employee must be paid his or her full salary.

• Absence for Personal Reasons: Deductions in salary can be made if the exempt employee is absent for one or more full days due to personal reasons. This explicitly does not include absences for sickness or disability. The absence must truly be for a personal reason and must be one or more whole days. Deductions cannot be made for partial days missed due to personal reasons.

• Deductions for Other Absences: Deductions from salary cannot be made for absences due to jury duty, attendance as a witness, or temporary military leave. However, an employer may offset any amounts received by the employee for these absences, if any.

• Deductions for Starting and Ending Weeks of Employment: Ordinarily, an employee must be paid his or her full weekly salary in which they perform any work. However, an exception for this general rule is that an employee can be paid on a prorated basis for their initial week of employment and for their final week of employment. For example, if a newly hired employee begins work on a Wednesday, they need only be paid the salary for Wednesday and the remaining week.

• Deductions for Breaking the Rules: Deductions from pay of exempt employees may be made for penalties imposed in good faith for infractions of safety rules of major significance or unpaid disciplinary suspensions of one or more full days imposed in good faith for infractions of workplace conduct rules.

Minimum Salary Exempt Employees Must be Paid

The minimum salary an exempt employee must be paid is currently in limbo. As of the date of this article, the minimum salary is $455 per week ($23,660 annually). A new rule was supposed to go into effect in December 2016 that would raise the minimum salary to $913 per week ($47,476 annually).[4] However, the implementation of this rule was delayed due to an injunction granted in a lawsuit challenging the new regulation. Currently, a new rule has been proposed which would increase the minimum salary to $679 per week ($35,308 annually). However, as of the date of this post, the new rule has not yet gone into effect. Our Columbus employment attorney will monitor the situation and provide updates in future latest thinking posts. However, all employers currently paying employees a salary should monitor the situation closely and plan for an increase in the minimum salary.

Our Columbus employment lawyer can assist your business to determine if employees are appropriately classified as exempt or non-exempt and assist employers in drafting employee handbooks and other policies that can be vital to ensuring federal and state employment laws are being complied with.

[1] 29 CFR § 541.602

[2] 29 CFR § 541.602

[3] 29 CFR § 541.602(b)(2)

[4] 29 CFR § 541.600