As discussed in the previous post, the white collar overtime exemptions to the Fair Labor Standards Act (FLSA) include both a salary basis test and a duties test. This post will explain the salary basis test.
What does it mean for an employee to be “salaried”? In everyday language, people often use the word salary as a general term for how much someone earns. When employment attorneys use the word salary, they mean something more specific. A valid salary under the FLSA must be:
Regularly and consistently paid;
Not subject to deductions based on quality or quantity of work; and
At least $455 per week (although this number is subject to change in the near future, as explained below).
If an employee’s pay does not fit each of these criteria, he is not salaried under the FLSA. Let’s address each of these points in turn.
A Salary Is Regular and Consistent
First, a salary must be paid regularly, on at least a monthly basis (weekly or biweekly pay is OK as well). The amount paid must be consistent from week to week, meaning it cannot vary based on the number of hours worked or the quality of work performed. An individual whose pay is set by the hour, or by the job, is not “salaried” under the FLSA.
A Salary Is Subject to Very Limited Deductions
An employer cannot make deductions from the pay of a salaried worker due to the quantity or quality of work. This is the tradeoff inherent in the FLSA’s overtime exemptions: an employee is not paid extra for hours worked over forty, but he is still paid the same if he works less than forty. Many employers do not understand this critical point.
An employer may deduct from a salaried employee’s pay only for absences lasting the entire day. In other words, there can be no deductions for half-day absences such as attending a doctor’s appointment or leaving work early. An employer may also dock pay for violations of a “safety rule of major significance.” Any other deduction – such as deducting from a manager’s pay for missing a monthly sales goal – renders the employee non-exempt and overtime-eligible. (Of course, employers may make standard payroll deductions for taxes or insurance.) Deducting from the pay of salaried employees can lead to a significant award of backpay, penalties, and attorney’s fees.
The Salary Must Meet a Certain Threshold
An exempt employee’s salary must also meet or exceed a minimum weekly threshold, which is adjusted from time to time by the Department of Labor. However, the actual amount is currently uncertain.
This requires some explanation. The minimum salary basis is set by the Department of Labor, which most recently increased the figure to $455 a week in 2004. In 2016 the Department of Labor proposed a new regulation that would have roughly doubled the minimum salary to $913 per week, effective December 1, 2016. Many companies spent a significant amount of time and money to prepare for this new regulation.
However, just before the 2016 regulations went into effect, a federal court in Texas held that the new regulation exceeded the Department of Labor’s authority and struck it down. Thus, the previous minimum salary of $455 per week is still in effect. That ruling is on appeal, and will probably not be resolved until summer 2017 at the earliest — longer, if the Supreme Court becomes involved. The Department of Labor may also choose to withdraw or amend the proposed regulation rather than continue litigating in the courts.
For now, the practical takeaway is simple: the minimum salary basis is currently $455 per week. That number may or may not increase to $913, depending on the outcome of an ongoing appeal. Any employee who is paid less than that amount cannot be overtime exempt under the white collar exemptions.
Exceptions To The Salary Basis Test
As a final note, the salary basis test does not apply to attorneys, medical doctors, or teachers in bona fide educational establishments. They are overtime-exempt even if they are paid less than $455 per week, or if they are paid on an hourly basis. (An hourly employee under these circumstances still must be paid for all hours worked, but the employer may use the regular rate rather than the time-and-a-half rate.) This exception is strictly applied only to attorneys, doctors, and teachers, and does not apply to related fields such as paralegals, nurses, or school administrators.
This explains the salary basis test in a nutshell. But as I mentioned earlier, many employers and employees wrongly believe that the salary basis is the only component of the FLSA overtime exemption. In reality, it is only the beginning. The next posts will address the duties tests, which differ depending on whether the employee is an executive or managerial employee, an administrative worker, or a learned professional.
If you have any questions about the salary basis test, or the FLSA overtime exemptions in general, please call me at (504) 267-0777 or contact us today.