HR Support on the FLSA Salary Basis Test

Editor's Note: Docking exempt employees' salaries can sometimes prove quite costly.

Michael CardmanOverview: The most frequently applied employee classification exemptions from the overtime requirements of the Fair Labor Standards Act (FLSA) all have a single requirement in common: to qualify, employees must be paid on a salary basis. This prerequisite is often referred to as the salary basis test.

An employee generally will satisfy the salary basis test if:

  1. The employee is regularly paid a set amount of compensation of at least $455 per week; and
  2. The amount of compensation is not reduced because of the quality or quantity of the employee's work.

The second requirement trips up some employers, who mistakenly assume that they can dock an exempt employee's salary for infractions such as reporting to work late or failing to meet production quotas.

As with most things involving the FLSA, there are many exceptions and variations to the basic rule.

Trends: For many years, employers that violated the salary basis test jeopardized their employees' FLSA-exempt status, leaving themselves vulnerable to claims for years of unpaid overtime.

But in 2004, the U.S. Department of Labor amended its FLSA regulations with a "safe harbor" provision that makes it easier for well-intentioned employers to correct salary-basis errors without forfeiting their employees' exempt status.

More and more employers are adopting workplace policies that allow them to take advantage of the safe harbor.

Author: Michael Cardman, Legal Editor

Latest items in Salary Basis Test

  • Report: White House to Make More Employees Eligible for Overtime

    Date:
    12 March 2014
    Type:
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    According to the New York Times, President Obama will ask the US Department of Labor (DOL) to issue new regulations that would require employees to be paid a higher salary and spend a certain percentage of their time performing exempt work to qualify for an exemption from the overtime requirements of the Fair Labor Standards Act (FLSA).

  • Employment Law Manual Updated to Reflect New York Minimum Wage Orders

    Date:
    21 November 2013
    Type:
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    The Minimum Wage and Employee Classification sections of the Employment Law Manual now include information about upcoming changes to the minimum salary requirements for executive and administrative employees, to the minimum wage credit for tipped employees and to the allowances for meals, lodging and uniforms.

  • Infographic: Government Enforcement Trends Show that Workplace Compliance Is a Top Priority

    Date:
    01 July 2013
    Type:
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    Our new infographic dramatically shows the disconcerting enforcement trends facing employers throughout the US.

  • Unusual Compensation Plan Did Not Invalidate FLSA Exemption, 3rd Circuit Rules

    Date:
    29 April 2013
    Type:
    News

    An employer may prorate the base pay of a salaried employee without forfeiting the employee's exemption from the overtime requirements of the Fair Labor Standards Act (FLSA), as long as it covers the shortfall with additional premium compensation, the 3rd Circuit Court of Appeals held in Sander v. Light Action.

  • Employee Classification: District of Columbia

    Type:
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    In-depth review of the spectrum of District of Columbia employment law requirements HR must follow with respect to employee classification.

  • May an employer dock a salaried employee's pay if the employee shows up late or leaves early?

    Type:
    FAQs

  • May an employer make deductions from its exempt employees' bonuses?

    Type:
    FAQs

  • Salary Basis Test - Checklist

    Type:
    Policies and Documents

    An employer may use this checklist to ensure sure that an employee is paid on a "salary basis," which is required by many of the exemptions from the overtime pay requirements of the Fair Labor Standards Act (FLSA).

  • Salary Basis Policy

    Type:
    Policies and Documents

    An employer may use this policy to ensure they will meet the requirements of the "safe harbor" provision of the Fair Labor Standards Act (FLSA). Under the "safe harbor" provision, employers that inadvertently make improper deductions from the pay of exempt employees can shield themselves from overtime liability if they adopt a salary basis policy and take other steps.

  • Bona Fide Sick Leave Plan Policy

    Type:
    Policies and Documents

    An employer may use this sample bona fide leave plan to ensure they fulfill all requirements under the Fair Labor Standards Act (FLSA) when making deductions from the salary of an employee classified as exempt. Under the FLSA, deductions may be made to exempt employees for absences of one or more days that are caused by sickness or disability only if the employer has a "bona fide plan, policy or practice of providing compensation for salary lost due to illness."