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 phrase “salary basis,” they mean something more specific. A valid salary under the FLSA must be:
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Regularly and consistently paid;
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Not subject to deductions based on quality or quantity of work; and
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At least $684 per week (roughly equal to $35,600 per year).
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. (That being said, assuming there is a guarantee of at least $684 per week, no matter what, certain additional payments or bonuses above that number are generally allowed.)
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 must be the same salary even if he works less than forty hours. Many employers do not understand this critical point, and try to punish salaried workers when they do not work at least forty hours in a week. This violates federal law.
The law allows employers to deduct from a salaried employee’s pay only for absences that last at least one full day. In other words, there can be no deductions for part-day or 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.) Deductions from the pay of salaried employees violate the salary basis test and 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. It was most recently amended in January 2020, when the minimum weekly pay increased from $455 per week to $684 per week (roughly a 50% increase). In January 2020, a revised regulation went into effect resetting the salary basis and setting new rules on the use of “nondiscretionary bonuses” in meeting the minimum salary basis requirement.
Over the past few years, there has been much discussion about amending or increasing this weekly figure, or indexing it to inflation. To date, those attempts have been stricken down by courts or otherwise shelved by the Department of Labor. It is all but inevitable that this number will eventually increase, but the question is when. In addition, a few states have individual state laws setting the salary basis higher than $684 per week. Louisiana, however, uses the federal salary basis of $684.
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 the minimum salary basis, 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.
Conclusion
This article is intended to give a brief explanation of the salary basis test. But as 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, call New Orleans overtime lawyer Charles Stiegler at (504) 267-0777 or email me today.