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HR Support on the Salary Basis Test

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

Michael CardmanOverview: The most frequently applied exemptions from the overtime requirements of the Fair Labor Standards Act (FLSA) and many state wage and hour laws 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; 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 wage and hour laws, there are many exceptions and variations to the basic rule.

Trends: Effective January 1, 2020, a final overtime rule from the US Department of Labor (DOL) increased the minimum salary from $455 per week (or $23,660 per year) to $684 per week (or $35,568 per year). The rule also allows employers to count nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard salary level test, as long as they are paid annually or more frequently.

Author: Michael Cardman, Legal Editor

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