State:

National
Under both the federal Fair Labor Standards Act (FLSA) and other federal laws applicable to public works projects, employers must pay overtime to employees who work in excess of 40 hours per week. However, FLSA regulations exempt certain kinds of jobs from the overtime pay laws if:
• The employees are paid on a “salary basis” and receive at least a prescribed minimum salary; and
• They meet special duty criteria established by the U.S. Department of Labor (DOL).
Executive employees, professionals, and administrative employees may be classified as exempt from federal overtime requirements if paid on a salary basis. Please see the national Exempt Personnel section.
Warning: The salary level test, the salary basis test, and the duties tests must be met for an employee to be exempt from overtime requirements. Failure to meet the salary basis requirement, for example, by making impermissible deductions will negate an employee's or group of employees' exempt status. Such employees may sue for retroactive overtime pay. In addition, some salaried employees are entitled to overtime pay for hours worked in excess of 40 hours in a workweek. Whether an employee is entitled to time-and-one-half for overtime will depend not only on whether he or she is paid on a salary basis but also on whether he or she meets all other exemption requirements, especially the duty criteria.
DOL enforces regulations that define the salary basis requirement for exempt status (29 CFR 541.118, 541.212, and 541.312). To be exempt, administrative, executive, and professional employees must generally be paid a predetermined amount each pay period that is at least the minimum weekly salary required by the regulations. The amount paid may not be reduced because of a variation in the quality or quantity of the work performed. With few exceptions, the employee must receive his or her full salary for any week in which he or she performs any work without regard to the number of days or hours worked.
Fee basis. Administrative and professional employees may be paid on a fee basis rather than on a salary basis. A fee payment is generally paid for a unique job rather than for a series of jobs repeated a number of times and for which identical payments repeatedly are made. To determine whether the fee payment meets the minimum salary threshold, the amount paid to the employee should be tested by determining the time worked on the job and whether the fee payment is at a rate that would amount to at least $455 per week if the employee worked 40 hours. For example, an artist paid $250 for a picture that took 20 hours to complete meets the minimum salary requirement since the rate would yield $500 if 40 hours were worked.
Important: A salaried employee need not be paid for any workweek in which he or she performs no work. A workweek is a period of 168 hours during seven consecutive 24-hour periods. A workweek may begin on any day of the week and at any hour of the day established by the employer. Generally, for purposes of computing minimum wage and overtime, each workweek stands alone, regardless of whether employees are paid on a weekly, biweekly, monthly, or semimonthly basis. Two or more workweeks cannot be averaged.
Whether a deduction is permissible or impermissible will depend on the facts in the particular case. If deductions are generally made when there is no work available, it indicates that there was no intention to pay the employee on a salary basis. If an employer has an actual practice of making improper deductions from the pay of exempt employees, the employer will lose the exemption for the entire class of employees in that job classification who work for that manager.
The FLSA regulations emphasize, though, that improper deductions that are either isolated or inadvertent will not result in loss of the exemption, as long as the employer reimburses the employees for improperly deducting from their pay.
In addition, the new regulations set out “safe harbor” requirements that, if met, will protect employers from losing the exemption. Employers qualify for the safe-harbor by:
• Having a clearly communicated policy, which includes a complaint mechanism, that prohibits improper pay deductions
• Reimbursing employees for any improper deductions that have occurred
• Making a good-faith commitment to comply with the regulations in the future
But if the employer willfully violates the policy by continuing to make improper deductions after receiving employee complaints, the exemption will be lost during the time period in which the improper deductions were made.
The FLSA regulations explain that the best evidence of a clearly communicated policy is a written document that is distributed to employees prior to the improper pay deductions. Methods of distribution include providing a copy of the policy document to employees at the time of hire; including the policy in an employee handbook; and publishing the policy on the employer's intranet,
General rule--stick to company policy. Remember, the FLSA does not regulate vacation, severance, sick and holiday pay, or rest and meal times. Most of these are a matter of company policy and should be enforced in a nondiscriminatory manner. As a general rule, employers should err on the side of caution when it comes to deducting from exempt personnel. If an exempt employee abuses the company's policy on work time, employers cannot dock from their pay. Instead, point out the policy, and discipline the employee accordingly.
State law. In addition, be aware that many state laws do regulate areas not regulated by the FLSA. In these cases, the state law would control.
Personal reasons. Deductions may be made when the employee is absent from work for a day or more for personal reasons other than sickness or accident. Thus, if an employee is absent for a day or longer to handle personal affairs, his or her salaried status will not be affected if deductions are made from his or her salary for such absences. If an employee is absent for less than a day, he or she must be paid for the full day.
Employers may, as a condition of employment, require that employees make up lost time. While employers can require makeup work, they cannot deduct if it does not happen. Employers may, however, take other appropriate sanctions.
Sickness or disability. Deductions may be made for absences of a day or more caused by sickness or disability (including industrial accidents) if the deductions are made under a bona fide plan, policy, or practice of providing compensation for loss of salary caused by both sickness and disability. It is important to distinguish between deducting from an employee's paycheck and deducting from an employee's allotted sick time. The employer may not deduct an employee's pay for less than a day's absence for sickness or disability. But, if an employer, for example, provides an employee with 2 weeks of paid sick time by company policy and the employee has used up all of his or her sick time, an employer may deduct from the employee's paycheck in full-day increments if the employee is out for a day or more. If the employee works for any part of a day, though, and is out sick the remainder of the day, the employer may not deduct from the employee's paycheck. On the other hand, employers may deduct from an employees allotted sick time under the company's leave plan in increments of less than a day as long as the employee has not used up his or her paid sick time.
Similarly, if the employer operates under a state or private sickness and disability insurance law, deductions may be made for a day or longer if benefits are provided under the particular law or plan. In the case of work-related accidents, the salary basis requirement will be met if the employee is compensated for loss of salary in accordance with the applicable workers' compensation law or the plan adopted by the employer, provided the employer also has some plan, policy, or practice of providing compensation for sickness and disability for non-work-related accidents.
Note about sickness/disability. An employer may make a deduction from an exempt employee's salary for the employee's full-day absences due to sickness provided the deduction is made in accordance with a bona fide plan, policy, or practice of providing wage replacement benefits for such absences. Deductions may also be made for the exempt employee's full-day absences due to sickness before the employee has qualified for the plan, policy, or practice or after the employee has exhausted the leave allowance under the plan. For example, an employer's sick leave plan provides each employee with 10 paid sick days per year. An employee must work for the employer 90 days before becoming eligible for the sick leave benefit. In this example, a deduction of 1 or more full days may be made from the salary of an exempt employee who is absent due to sickness:
• Before the employee becomes eligible to participate in the sick leave plan (i.e., in the initial 90 days of employment);
• After the employee has exhausted the 10-day leave entitlement under the sick leave plan; and
• When the employee receives compensation according to the employer's sick leave plan. In this case, the employee would most likely not see a reduction in pay, but rather, the employee's sick leave benefit would be reduced by the number of days he or she was absent due to sickness and for which compensation from the plan was received.
Family and Medical Leave Act (FMLA) leave. Employers may dock the pay of otherwise salaried and exempt employees for family and medical leave-related absences of less than full day without affecting their exempt status, but only in situations where the employer is required to provide leave under the FMLA. This provision does not allow docking for leave under state family and medical leave laws nor does it apply to employees who are not covered by the FMLA or to types of leave that are not covered by the FMLA (for example, personal or education leave). Please see the national Leave of Absence section.
Safety penalties. Suspensions imposed in good faith for infractions of significant safety rules will not affect the employee's salaried status. Significant safety rules include only those relating to the prevention of serious danger to the plant or other employees, such as rules that prohibit smoking in explosives plants, oil refineries, and coal mines.
First and last week. An exempt employee need not be paid his or her full weekly salary during the first and last weeks of employment. The salary may be prorated on the basis of the number of days actually on the payroll.
Disciplinary suspensions. Deductions from the pay of exempt employees may be made for unpaid disciplinary suspensions of 1 or more full days imposed in good faith for violations of workplace conduct rules. The employer must have a written policy applicable to all employees in order to do this. For example, an employer may suspend an exempt employee without pay for 3 days for violating a generally applicable written policy prohibiting sexual harassment or workplace violence.
No work available. If the employee is ready, willing, and able to work, deductions may not be made for time when work is not available.
Caused by employer or operations of business. During office closures due to inclement weather, disasters, or by the operating requirements of the business, a private employer may direct exempt staff to take vacation or leave bank deductions without jeopardizing the employees’ exempt status. There is no prohibition on an employer giving vacation time and later requiring that the vacation time be taken on specific days. However, an employee will not be considered a salaried employee if the employer deducts from the employee's pay for absences caused by the employer or by the operating requirements of the business. If an employee is ready, willing, and able to work, deductions from pay may not be made for time when work is not available. Therefore, if an employer closes the office because of inclement weather or other disasters for less than a full workweek, the employer must pay the employee’s full salary even if:
• The employer does not have a bona fide benefits plan;
• The employee has no accrued benefits in the leave bank;
• The employee has limited accrued leave benefits, and reducing that accrued leave will result in a negative balance; or
• The employee already has a negative balance in the accrued leave bank.
Note: If the private employer’s offices remain open during inclement weather or other types of disasters, exempt staff may be directed to take vacation or leave deductions if they fail to report to work, without jeopardizing the employees’ exempt status. When the office is open, an exempt employee who has no accrued benefits in the leave bank account does not have to be paid for the full day(s) the employee fails to report to work because of such circumstances as a heavy snow day. The US Department of Labor has stated that employers, such as hospitals, that typically remain open for business during weather emergencies and have a policy that does not allow employees to use vacation or leave bank time when an employee chooses not to report to work because of the adverse weather conditions, may lawfully deduct 1 full-day’s absence from the salary of such an exempt employee without jeopardizing the employee's exempt status.
Jury duty/witness appearance/military leave. Deductions may not be made for absences for jury duty, attendance as a witness, or temporary military leave. The employer may, however, offset any fees the employee receives as a juror or witness or military pay for a particular week against the salary due for that particular week without loss of the exemption. Please see the national Jury Duty/Court Appearance, national Military Service sections.
Exempt employees may be disciplined by deductions from pay made for unpaid disciplinary suspensions of 1 or more full days imposed in good faith for violation of written workplace conduct rules. If an exempt employee is disciplined by docking pay or suspension without pay of less than a full workweek for other reasons, the exemption will be lost and back overtime may be owed. An exempt employee may be disciplined in other ways such as firing, salary reduction for future workweeks, and reclassification as a nonexempt hourly employee paid at an hourly rate.
An employer is not prohibited from prospectively reducing the salary of an exempt employee during a business or economic slowdown, provided the change is bona fide and not used to evade the salary basis requirements. This type of salary reduction, not related to the quantity or quality of work performed, will not result in loss of the overtime exemption, as long as the employee still receives on a salary basis at least $455 per week. On the other hand, deductions from predetermined pay occasioned by day-to-day or week-to-week determinations of the operating requirements of the business constitute impermissible deductions and would result in loss of the overtime exemption. The difference is that the first instance involves long-term business needs, rather than a short-term, day-to-day or week-to-week deduction from the fixed salary for absences from scheduled work occasioned by the employer or its business operations.
Employers often confuse exempt employees with nonexempt salaried and nonexempt hourly employees when it comes to deducting pay for working fewer hours in a certain week.
Exempt employees must be paid their full salary in any week that they work at all, even if they only work 1hour--with a few exceptions.
Nonexempt salaried employees are paid on a salary basis, but if a nonexempt salaried employee works less than his or her standard hours, for example, 40 hours per week, the employer may deduct the employee's pay for working fewer hours in a given week.
Nonexempt hourly employees are paid by the hour. No deductions are needed for working fewer hours in a week. The employer simply adds up the hours worked in the week and pays the employee on that basis.
Nonexempt employees are often paid on a salary basis, but still must be paid overtime if they work more than 40 hours in a workweek. There is a simple standard method for calculating the amount of overtime owed such employees and alternate methods that reduce the amount of overtime owed. The alternate methods have additional requirements described below.
Standard method. If a nonexempt employee works over 40 hours (e.g., 50 hours at a base salary of $400 per week for a 40-hour week), the standard way of calculating the weekly pay is as follows:
A. Divide the weekly rate by 40 ($400/40 = $10) and calculate the week's pay as $10 x 40 plus $15 x 10 = $550.
Alternate method. However, if the nonexempt employee is salaried, the following methods may be used:
B. Divide the weekly salary by the actual number of hours worked ($400/50 = $8) and calculate the week's pay as follows: $8 x 40 plus $12 x 10 = $440; or
C. Treat the $400 as the salary for all straight-time hours worked. Overtime could be calculated as $400 plus half-time for hours over 40: $400 + [1/2 ($400/50)] x 10 = $440 (same result as B).
By using methods B and C, it is possible (and legal) to avoid paying nonexempt employees standard time-and-a-half, based on the employee's straight-time wages, for hours worked in excess of 40. However, this can be done only if the employer:
1. Pays the employees a guaranteed salary, even if the employee works fewer than 40 hours during a week
2. Keeps precise time records
3. Ensures that minimum wage rules are not violated
4. Has a written agreement with the affected employees
5. Refrains from deducting for certain time missed from work, such as jury duty and fractional personal and sick days
Note: Methods B and C are seldom used, primarily because, from the employees' viewpoint, the calculations are difficult to understand. Furthermore, employees may be unwilling to put in any significant amounts of overtime and might prefer to work for organizations that pay “normal” overtime. From the employer's viewpoint, this approach is unpopular because of the fear that workers will abuse the guaranteed salary.
Employers can contact the U.S. Department of Labor with any questions about salaried employees at:
U.S. Department of Labor
Division of Fair Labor Standards Act Operations
Wage and Hour Division
200 Constitution Avenue, NW, Room S-3516
Washington, DC 20210
202-693-0067
Last updated on June 21, 2017.
Related Topics:
National
Under both the federal Fair Labor Standards Act (FLSA) and other federal laws applicable to public works projects, employers must pay overtime to employees who work in excess of 40 hours per week. However, FLSA regulations exempt certain kinds of jobs from the overtime pay laws if:
• The employees are paid on a “salary basis” and receive at least a prescribed minimum salary; and
• They meet special duty criteria established by the U.S. Department of Labor (DOL).
Executive employees, professionals, and administrative employees may be classified as exempt from federal overtime requirements if paid on a salary basis. Please see the national Exempt Personnel section.
Warning: The salary level test, the salary basis test, and the duties tests must be met for an employee to be exempt from overtime requirements. Failure to meet the salary basis requirement, for example, by making impermissible deductions will negate an employee's or group of employees' exempt status. Such employees may sue for retroactive overtime pay. In addition, some salaried employees are entitled to overtime pay for hours worked in excess of 40 hours in a workweek. Whether an employee is entitled to time-and-one-half for overtime will depend not only on whether he or she is paid on a salary basis but also on whether he or she meets all other exemption requirements, especially the duty criteria.
DOL enforces regulations that define the salary basis requirement for exempt status (29 CFR 541.118, 541.212, and 541.312). To be exempt, administrative, executive, and professional employees must generally be paid a predetermined amount each pay period that is at least the minimum weekly salary required by the regulations. The amount paid may not be reduced because of a variation in the quality or quantity of the work performed. With few exceptions, the employee must receive his or her full salary for any week in which he or she performs any work without regard to the number of days or hours worked.
Fee basis. Administrative and professional employees may be paid on a fee basis rather than on a salary basis. A fee payment is generally paid for a unique job rather than for a series of jobs repeated a number of times and for which identical payments repeatedly are made. To determine whether the fee payment meets the minimum salary threshold, the amount paid to the employee should be tested by determining the time worked on the job and whether the fee payment is at a rate that would amount to at least $455 per week if the employee worked 40 hours. For example, an artist paid $250 for a picture that took 20 hours to complete meets the minimum salary requirement since the rate would yield $500 if 40 hours were worked.
Important: A salaried employee need not be paid for any workweek in which he or she performs no work. A workweek is a period of 168 hours during seven consecutive 24-hour periods. A workweek may begin on any day of the week and at any hour of the day established by the employer. Generally, for purposes of computing minimum wage and overtime, each workweek stands alone, regardless of whether employees are paid on a weekly, biweekly, monthly, or semimonthly basis. Two or more workweeks cannot be averaged.
Whether a deduction is permissible or impermissible will depend on the facts in the particular case. If deductions are generally made when there is no work available, it indicates that there was no intention to pay the employee on a salary basis. If an employer has an actual practice of making improper deductions from the pay of exempt employees, the employer will lose the exemption for the entire class of employees in that job classification who work for that manager.
The FLSA regulations emphasize, though, that improper deductions that are either isolated or inadvertent will not result in loss of the exemption, as long as the employer reimburses the employees for improperly deducting from their pay.
In addition, the new regulations set out “safe harbor” requirements that, if met, will protect employers from losing the exemption. Employers qualify for the safe-harbor by:
• Having a clearly communicated policy, which includes a complaint mechanism, that prohibits improper pay deductions
• Reimbursing employees for any improper deductions that have occurred
• Making a good-faith commitment to comply with the regulations in the future
But if the employer willfully violates the policy by continuing to make improper deductions after receiving employee complaints, the exemption will be lost during the time period in which the improper deductions were made.
The FLSA regulations explain that the best evidence of a clearly communicated policy is a written document that is distributed to employees prior to the improper pay deductions. Methods of distribution include providing a copy of the policy document to employees at the time of hire; including the policy in an employee handbook; and publishing the policy on the employer's intranet,
General rule--stick to company policy. Remember, the FLSA does not regulate vacation, severance, sick and holiday pay, or rest and meal times. Most of these are a matter of company policy and should be enforced in a nondiscriminatory manner. As a general rule, employers should err on the side of caution when it comes to deducting from exempt personnel. If an exempt employee abuses the company's policy on work time, employers cannot dock from their pay. Instead, point out the policy, and discipline the employee accordingly.
State law. In addition, be aware that many state laws do regulate areas not regulated by the FLSA. In these cases, the state law would control.
Personal reasons. Deductions may be made when the employee is absent from work for a day or more for personal reasons other than sickness or accident. Thus, if an employee is absent for a day or longer to handle personal affairs, his or her salaried status will not be affected if deductions are made from his or her salary for such absences. If an employee is absent for less than a day, he or she must be paid for the full day.
Employers may, as a condition of employment, require that employees make up lost time. While employers can require makeup work, they cannot deduct if it does not happen. Employers may, however, take other appropriate sanctions.
Sickness or disability. Deductions may be made for absences of a day or more caused by sickness or disability (including industrial accidents) if the deductions are made under a bona fide plan, policy, or practice of providing compensation for loss of salary caused by both sickness and disability. It is important to distinguish between deducting from an employee's paycheck and deducting from an employee's allotted sick time. The employer may not deduct an employee's pay for less than a day's absence for sickness or disability. But, if an employer, for example, provides an employee with 2 weeks of paid sick time by company policy and the employee has used up all of his or her sick time, an employer may deduct from the employee's paycheck in full-day increments if the employee is out for a day or more. If the employee works for any part of a day, though, and is out sick the remainder of the day, the employer may not deduct from the employee's paycheck. On the other hand, employers may deduct from an employees allotted sick time under the company's leave plan in increments of less than a day as long as the employee has not used up his or her paid sick time.
Similarly, if the employer operates under a state or private sickness and disability insurance law, deductions may be made for a day or longer if benefits are provided under the particular law or plan. In the case of work-related accidents, the salary basis requirement will be met if the employee is compensated for loss of salary in accordance with the applicable workers' compensation law or the plan adopted by the employer, provided the employer also has some plan, policy, or practice of providing compensation for sickness and disability for non-work-related accidents.
Note about sickness/disability. An employer may make a deduction from an exempt employee's salary for the employee's full-day absences due to sickness provided the deduction is made in accordance with a bona fide plan, policy, or practice of providing wage replacement benefits for such absences. Deductions may also be made for the exempt employee's full-day absences due to sickness before the employee has qualified for the plan, policy, or practice or after the employee has exhausted the leave allowance under the plan. For example, an employer's sick leave plan provides each employee with 10 paid sick days per year. An employee must work for the employer 90 days before becoming eligible for the sick leave benefit. In this example, a deduction of 1 or more full days may be made from the salary of an exempt employee who is absent due to sickness:
• Before the employee becomes eligible to participate in the sick leave plan (i.e., in the initial 90 days of employment);
• After the employee has exhausted the 10-day leave entitlement under the sick leave plan; and
• When the employee receives compensation according to the employer's sick leave plan. In this case, the employee would most likely not see a reduction in pay, but rather, the employee's sick leave benefit would be reduced by the number of days he or she was absent due to sickness and for which compensation from the plan was received.
Family and Medical Leave Act (FMLA) leave. Employers may dock the pay of otherwise salaried and exempt employees for family and medical leave-related absences of less than full day without affecting their exempt status, but only in situations where the employer is required to provide leave under the FMLA. This provision does not allow docking for leave under state family and medical leave laws nor does it apply to employees who are not covered by the FMLA or to types of leave that are not covered by the FMLA (for example, personal or education leave). Please see the national Leave of Absence section.
Safety penalties. Suspensions imposed in good faith for infractions of significant safety rules will not affect the employee's salaried status. Significant safety rules include only those relating to the prevention of serious danger to the plant or other employees, such as rules that prohibit smoking in explosives plants, oil refineries, and coal mines.
First and last week. An exempt employee need not be paid his or her full weekly salary during the first and last weeks of employment. The salary may be prorated on the basis of the number of days actually on the payroll.
Disciplinary suspensions. Deductions from the pay of exempt employees may be made for unpaid disciplinary suspensions of 1 or more full days imposed in good faith for violations of workplace conduct rules. The employer must have a written policy applicable to all employees in order to do this. For example, an employer may suspend an exempt employee without pay for 3 days for violating a generally applicable written policy prohibiting sexual harassment or workplace violence.
No work available. If the employee is ready, willing, and able to work, deductions may not be made for time when work is not available.
Caused by employer or operations of business. During office closures due to inclement weather, disasters, or by the operating requirements of the business, a private employer may direct exempt staff to take vacation or leave bank deductions without jeopardizing the employees’ exempt status. There is no prohibition on an employer giving vacation time and later requiring that the vacation time be taken on specific days. However, an employee will not be considered a salaried employee if the employer deducts from the employee's pay for absences caused by the employer or by the operating requirements of the business. If an employee is ready, willing, and able to work, deductions from pay may not be made for time when work is not available. Therefore, if an employer closes the office because of inclement weather or other disasters for less than a full workweek, the employer must pay the employee’s full salary even if:
• The employer does not have a bona fide benefits plan;
• The employee has no accrued benefits in the leave bank;
• The employee has limited accrued leave benefits, and reducing that accrued leave will result in a negative balance; or
• The employee already has a negative balance in the accrued leave bank.
Note: If the private employer’s offices remain open during inclement weather or other types of disasters, exempt staff may be directed to take vacation or leave deductions if they fail to report to work, without jeopardizing the employees’ exempt status. When the office is open, an exempt employee who has no accrued benefits in the leave bank account does not have to be paid for the full day(s) the employee fails to report to work because of such circumstances as a heavy snow day. The US Department of Labor has stated that employers, such as hospitals, that typically remain open for business during weather emergencies and have a policy that does not allow employees to use vacation or leave bank time when an employee chooses not to report to work because of the adverse weather conditions, may lawfully deduct 1 full-day’s absence from the salary of such an exempt employee without jeopardizing the employee's exempt status.
Jury duty/witness appearance/military leave. Deductions may not be made for absences for jury duty, attendance as a witness, or temporary military leave. The employer may, however, offset any fees the employee receives as a juror or witness or military pay for a particular week against the salary due for that particular week without loss of the exemption. Please see the national Jury Duty/Court Appearance, national Military Service sections.
Exempt employees may be disciplined by deductions from pay made for unpaid disciplinary suspensions of 1 or more full days imposed in good faith for violation of written workplace conduct rules. If an exempt employee is disciplined by docking pay or suspension without pay of less than a full workweek for other reasons, the exemption will be lost and back overtime may be owed. An exempt employee may be disciplined in other ways such as firing, salary reduction for future workweeks, and reclassification as a nonexempt hourly employee paid at an hourly rate.
An employer is not prohibited from prospectively reducing the salary of an exempt employee during a business or economic slowdown, provided the change is bona fide and not used to evade the salary basis requirements. This type of salary reduction, not related to the quantity or quality of work performed, will not result in loss of the overtime exemption, as long as the employee still receives on a salary basis at least $455 per week. On the other hand, deductions from predetermined pay occasioned by day-to-day or week-to-week determinations of the operating requirements of the business constitute impermissible deductions and would result in loss of the overtime exemption. The difference is that the first instance involves long-term business needs, rather than a short-term, day-to-day or week-to-week deduction from the fixed salary for absences from scheduled work occasioned by the employer or its business operations.
Employers often confuse exempt employees with nonexempt salaried and nonexempt hourly employees when it comes to deducting pay for working fewer hours in a certain week.
Exempt employees must be paid their full salary in any week that they work at all, even if they only work 1hour--with a few exceptions.
Nonexempt salaried employees are paid on a salary basis, but if a nonexempt salaried employee works less than his or her standard hours, for example, 40 hours per week, the employer may deduct the employee's pay for working fewer hours in a given week.
Nonexempt hourly employees are paid by the hour. No deductions are needed for working fewer hours in a week. The employer simply adds up the hours worked in the week and pays the employee on that basis.
Nonexempt employees are often paid on a salary basis, but still must be paid overtime if they work more than 40 hours in a workweek. There is a simple standard method for calculating the amount of overtime owed such employees and alternate methods that reduce the amount of overtime owed. The alternate methods have additional requirements described below.
Standard method. If a nonexempt employee works over 40 hours (e.g., 50 hours at a base salary of $400 per week for a 40-hour week), the standard way of calculating the weekly pay is as follows:
A. Divide the weekly rate by 40 ($400/40 = $10) and calculate the week's pay as $10 x 40 plus $15 x 10 = $550.
Alternate method. However, if the nonexempt employee is salaried, the following methods may be used:
B. Divide the weekly salary by the actual number of hours worked ($400/50 = $8) and calculate the week's pay as follows: $8 x 40 plus $12 x 10 = $440; or
C. Treat the $400 as the salary for all straight-time hours worked. Overtime could be calculated as $400 plus half-time for hours over 40: $400 + [1/2 ($400/50)] x 10 = $440 (same result as B).
By using methods B and C, it is possible (and legal) to avoid paying nonexempt employees standard time-and-a-half, based on the employee's straight-time wages, for hours worked in excess of 40. However, this can be done only if the employer:
1. Pays the employees a guaranteed salary, even if the employee works fewer than 40 hours during a week
2. Keeps precise time records
3. Ensures that minimum wage rules are not violated
4. Has a written agreement with the affected employees
5. Refrains from deducting for certain time missed from work, such as jury duty and fractional personal and sick days
Note: Methods B and C are seldom used, primarily because, from the employees' viewpoint, the calculations are difficult to understand. Furthermore, employees may be unwilling to put in any significant amounts of overtime and might prefer to work for organizations that pay “normal” overtime. From the employer's viewpoint, this approach is unpopular because of the fear that workers will abuse the guaranteed salary.
Employers can contact the U.S. Department of Labor with any questions about salaried employees at:
U.S. Department of Labor
Division of Fair Labor Standards Act Operations
Wage and Hour Division
200 Constitution Avenue, NW, Room S-3516
Washington, DC 20210
202-693-0067
Last updated on June 21, 2017.
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