July, 2006

WELCOME TO ...

Exempt Employees and the Salary Basis Test
(Part 1 of 2)

Eleven common questions concerning the FLSA salary basis requirement have evolved since the new exemption regulations took effect on August 23, 2004. Below are answers to the first five common questions:

1. What does it mean to be paid on a salary basis?

   To be exempt from the FLSA, and not entitled to overtime, an employee must meet certain job duty requirements, often involving managerial skills or the use of independent judgment and discretion, and be paid on a salary basis."
   
   The FLSA regulations provide for six broadly used
   classifications of exemptions, including:

   Administrative Employees

   Executive Employees

   Professional Employees

   Outside Sales Employees

   Highly Skilled Computer-Related Employees

   Highly Compensated Employees

   
   Salary basis is defined as the payment on a weekly or less frequent basis of a predetermined amount that constitutes all or part of compensation, without reductions for variations in the quality or quantity of the work performed.
   
   Under this definition, exempt employees generally must receive their full salary for any week in which they perform work, without regard to the number of days or hours worked. However, payment usually is not required if the employee does not perform any work during the entire week.
   
   Some exempt salary deductions may be made, but only in limited circumstances. You also should note, however, that the FLSA regulations indicate that doctors, lawyers, and teachers (typically categorized as professional exempt employees) and computer-related employees paid at least $27.63 an hour do not have to be paid on a salary basis to be considered exempt.

   NOTE: California regulations differ from the FLSA in that California requires an hourly rate of $47.81 for the Computer Professional exemption; and a salary that equals no less than two times the minimum wage for full time employment (40 hours a week) for other exemptions. That calculates to a minimum salary of $540.00 per week to meet the salary test for exemption.

2. Do we have to give paid vacation days, sick days, and holidays to exempt employees?

   Paid time-off generally is considered a benefit given at the employer's discretion. However, if you make deductions from an exempt employee's salary for unpaid time-off, you should be sure that the deductions do not violate the salary basis test, or you may lose the exemptions.The type and amount of time off determine whether you can make the deductions.
   

   
   
   • Vacation
     According to the FLSA regulations, you may make a pay deduction when an employee is absent for a full day for personal reasons. Thus, if you do not provide paid vacation or personal days, you may deduct the day off from the employee's salary.
     
     Similarly, if you give paid vacation days and the employee has used them all, you may deduct any additional full-day personal time-off.
     
     
   • Sick Leave
     You also may make deductions for a full day's absence due to illness or injury if you have a bona fide plan, policy, or practice that provides compensation for loss of salary due to sickness or disability. A policy that allows employees to accrue paid sick leave is an example. This deduction is permissible even if the exempt employee has not yet qualified for the plan or has exhausted the plan's sick leave allowance.
     
     However, according to the regulations, if you do not have a
     paid sick leave plan, you may not deduct the day from the employee's salary if the employee has worked any day that week. An exception to this rule is sick leave taken under the Family and Medical Leave Act (FMLA).
     
     The FMLA allows deductions from an exempt employee's
     salary for leave required by the FMLA.
     
     
   • Holidays
     The FLSA regulations do not specifically allow deductions for holidays. Therefore, you should not make deductions from an exempt employee's pay for holidays not worked.

3. Do we have to pay exempt employees when work is not available?
   
   Yes.
   You may not make deductions from an exempt employee's salary for absences caused by the employer or by the operating requirements of the business. Thus, if the exempt employee is ready, willing, and able to work, you must pay for the time when work is not available.
   
   
4. What about for jury duty and military leave?

   If an employee is absent for part of a week because of jury duty, attendance as a witness, or temporary military leave, you must pay for the full week. Deductions for partial week absences caused by these situations are not permitted. You may offset any military pay or monetary payments received as jury or witness fees for a particular week against the employee's salary for that same week.
   
   Remember, however, that you do not have to pay if the employee is absent for the entire week and does not perform any work during that time.
   
   

5. Do we have to pay exempt employees on days they cannot work because of inclement weather?

   Exempt employees generally should be paid for full-day absences resulting from inclement weather if the employer is closed. If the employer is open, the Department of Labor has indicated in opinion letters that employers may require exempt employees to use a paid day off or even dock their pay for a full day absence if they do not come to work.
   
   However, courts may not agree with this position, so employers that make deductions from exempt employees' pay for absences caused by inclement weather should weigh this option carefully.
   
   In next month's newsletter, you will learn whether you can make deductions for partial day absences and disciplinary suspensions, whether you can require exempt employees to work a set number of hours or track their work hours, and when you can provide exempt employees with extra compensation.
   
   We will also address, next month, your potential for personal liability for exemption decisions and the growing incidence of HR professionals being targeted personally as defendants in employment legal actions against the employer.
   _________________________________________
   Source of this article:
   © 2006 Personnel Policy Service, Inc. All Rights Reserved.
   HR Matters is a registered trademark of:
   Personnel Policy Service, Inc.
   159 St. Matthews Ave., Suite 5, Louisville, KY 40207
   Tel: 1-800-437-3735 - Fax: 1-800-755-7011
   

ABOUT MJMS, INC.

President and Principal Consultant: Margaret Jacoby, PHR

Margaret Jacoby has more than 25 years of Human Resources and professional management experience in a variety of industries. She has designed human resources infrastructure and implemented systems to ensure compliance with state and federal employment laws. She has directed high quality human resources functions for small and emerging businesses, and served as an external consultant to a wide range of diverse organizations, including non-profits.

Her work has included:

• Conducting H.R. Needs Assessments
• Drafting employee handbooks and policy manuals
• Conducting job analysis and developing position descriptions
• Conducting on-site compliance audits
• Counseling management on progressive discipline
  
• Drafting and review of employee disciplinary actions
• Providing mediation in employee/employee conflict
  
• Training employees/supervisors/managers in the implementation of human resources systems and policies such as Sexual Harassment
• Conducting workshops for business owners on H.R. compliance issues

Ms. Jacoby has earned the nationally-recognized certification of Professional in Human Resources (PHR) from the HR Certification Institute, Society for Human Resource Management (SHRM).

Ms. Jacoby's professional affiliations include:

• Professionals in Human Resources Association (PIHRA)
• Society for Human Resource Management (SHRM)
• National Association of Women Business Owners, Los Angeles
  (NAWBO-LA)
• California Chamber of Commerce
• Long Beach Community Business Network (LBCBN)
• Institute for Management Consultants (IMC)