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November 19, 2010
Salary Basis Test for Exemption

In a BLR webinar entitled "Overtime: Legal Strategies for Whittling Down Your Payouts Without Breaking the Law," Harold (Hal) M. Brody, Esq., partner, and Fredric C. Leffler, Esq., Senior Counsel in the Labor and Employment Law Department of Proskauer Rose LLP the key factors associated with the Salary Basis Test:.

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  • The Salary Basis thresholds are:
    • Apples to all employees who earn between $455 per week ($23,660 annually) and $100,000 per year
    • The $455 or more per week must be paid on a salary or fee basis
    • If the employee earns less than $455 per week ($23,660 annually) regardless of job duties performed, he or she is overtime-eligible
  • The employee must be paid on a predetermined fixed salary not subject to reduction based on the quality or quantity of work performed
  • Partial-day or week deductions are not permitted and will normally render the employee non-exempt
  • Docking is permitted:
    • for absences from work for one or more full days for personal reasons other than sickness or disability;
    • for sickness or disability (pursuant to a bona fide plan, policy or practices providing wage replacement benefits);
    • to offset jury or witness fees or military pay received by the employee;
    • for hours taken as unpaid Family and Medical Leave Act (FMLA) leave
  • New Department of Labor (DOL) exemption allows deductions from pay of exempt employees for "infractions of workplace conduct rules":
    • "Workplace conduct" refers to serious misconduct, not performance or attendance issues
    • Only applies if the suspension is pursuant to a policy that is generally applicable to all employees
    • Improper deductions may still destroy the Fair Labor Standards Act (FLSA) exemption -- "window of correction"
  • New safe harbor created --Sec. 541.603(d) -- in which the exemption is not lost provided the employer:
    • Has a clearly-communicated policy (preferably one in writing distributed to all employees) that prohibits improper pay deductions
    • Reimburses employees for improper deductions taken and makes a good faith attempt toward future compliance
    • Does not "willfully" violate the policy by continuing to make improper deductions after fielding employee complaints
  • Additional payments remain permissible -- Sec. 541.604(a):
    • Payments of additional compensation -- minimum guarantee plus incentive enhancement or minimum guarantee plus additional compensation based on hours worked -- will not destroy the exemption

Harold (Hal) M. Brody, Esq. is a partner in the Labor & Employment Law Department with Proskauer Rose LLP ( His practice is characterized by its diversity and he has represented employers in virtually every facet of labor and employment law. Fredric C. Leffler, Esq. is a Senior Counsel in the Labor & Employment Law Department and co-head of the Employment Law Counseling and Training Group. He represents major private and not-for-profit employers in all aspects of labor and employment law.

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