Are You Paid on a Salary Basis?

If you're paid on a salary basis, your employer is limited in the deductions it can make from your paycheck.

Under the federal Fair Labor Standards Act (FLSA), employers must pay overtime – time and a half – to employees who work more than 40 hours in a workweek. While most employees are covered by this rule, certain categories of employees are exempt from the overtime requirements, which means they are not entitled to earn overtime.

Some employees are exempt simply because of their occupations, regardless of how much they are paid. For other job categories, however, the employee must perform certain job duties and must also meet a salary test in order to be exempt from overtime. Under the salary test, the employee must earn at least $455 per week and be paid on a “salary basis.”

Which Occupations Are Covered?

Only certain categories of jobs are subject to the salary basis test. They include:

  • Administrative employees: employees whose primary duties are office or other nonmanual work directly related to the management or general business operations of the employer or its customers, and whose work includes the exercise of discretion and independent judgment.
  • Managerial employees: employees whose primary duties are managing the company or one of its departments or subdivisions, and who have the authority to supervise at least two employees and make or give meaningful input on personnel decisions, including hiring and firing.
  • Outside sales employees: employees whose primary duties are making sales or obtaining orders from clients or customers, and who customarily work away from the employer’s premises.
  • Professional employees: employees who either have the primary duties of performing work requiring invention, imagination, originality, or talent in a recognized artistic or creative field, or have the primary duties of performing work requiring advanced knowledge that is predominantly intellectual and typically acquired through a course of prolonged instruction.

For more information on these exemptions, see  Understanding the White Collar Exemptions.

Salary Basis Defined

You are paid on a salary basis if you receive your full salary for any week in which you perform any work, regardless of how many hours you work or the quality or amount of work you do. The purpose of this rule is to make sure that employers don’t treat exempt employees like hourly employees. In exchange for not having to pay exempt employees overtime, employers are required to treat them more like professionals who have some discretion in planning their days and determining how to meet their job requirements.

Exceptions to the Salary Basis Rule

An employer may pay an employee less than a full week’s salary (referred to as “docking” the employee’s pay) without breaking the salary basis rule if the employee takes time off:

  • for illness or disability (but only if the employee is absent for one or more full days, and only if employer has a sick leave policy or other plan that pays employees for this time off)
  • to take unpaid time off under the federal Family and Medical Leave Act (FMLA)
  • for personal reasons (but only when the employee is absent for one or more full days)
  • in the employee’s first or final week of work, if the employee works less than a full week
  • for jury or witness duty, or for temporary military leave (however, the employer may not deduct more than the employee receives as jury or witness fees or as military pay)
  • as a penalty for breaking a safety rule of major significance, or
  • as an unpaid disciplinary suspension imposed in good faith for infractions of workplace conduct rules, if the employer has a written policy on these suspensions that applies to all employees.

If Your Employer Violates the Salary Basis Rule

If your employer doesn’t follow the salary basis rule (for example, by docking your pay in circumstances not covered by one of the exceptions listed above or by adjusting your pay up and down each week to correspond to how many hours you work), you may be entitled to compensation. Employers won’t be legally liable if the pay docking is isolated and inadvertent, as long as employees are promptly reimbursed for any money accidentally withheld. And, even if the pay docking isn’t isolated and inadvertent, employers can take advantage of the FLSA's “safe harbor” provision to avoid losing the exemption status if all of the following are true:

  • the employer has a policy clearly prohibiting pay docking and a procedure for employees to make related complaints
  • the employer reimburses employees for any improper deductions, and
  • the employer makes good faith efforts to avoid pay docking in the future.

However, if an employer cannot claim the safe harbor provision, it could lose the overtime exemption for all employees in the job category that was improperly docked. In other words, your employer would owe you, and your coworkers in the same job position, overtime pay for any hours worked beyond 40 hours in a work week.

If you believe your employer has failed to pay you on a salary basis, an experienced employment lawyer can assess your case and help you decide how best to protect your interests.

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