Whether an employee is exempt from being paid overtime depends on whether that employee meets the requirements for an exemption under federal and applicable state laws.
Oftentimes, employers think employees are exempt and do not need to be paid overtime simply because they are paid on a salary basis. Legally, however, an employee must satisfy multiple specific criteria in order to qualify for an exemption under federal/state law. Furthermore, even where an employee meets these criteria, improper deductions from the salary of an exempt employee can result in the loss of the exemption, and the employer could be liable for unpaid overtime wages.
Subject to certain exceptions, exempt employees must receive their full salary for any week in which the employee performs any work, regardless of the number of days or hours worked. Improper salary deductions typically occur where the employer makes deductions from an exempt employee’s predetermined salary because of the operating requirements of the business. Some common examples of improper salary deductions under the Fair Labor Standards Act (FLSA) are as follows:
- A deduction of a day’s pay because the employer was closed due to inclement weather;
- A deduction of three days’ pay because the exempt employee was absent for jury duty;
- A deduction for a two-day absence due to a minor illness when the employer does not have a bona fide sick leave plan, policy or practice of providing wage replacement benefits; and
- A deduction for a partial day absence to attend a parent-teacher conference.
However, not all salary deductions are impermissible under the FLSA. Employers may make deductions from an exempt employee’s salary in the following circumstances:
- When an employee is absent from work for one or more full days for personal reasons other than sickness or disability;
- For absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness;
- To offset amounts employees receive as jury or witness fees, or for temporary military duty pay;
- For penalties imposed in good faith for infractions of safety rules of major significance;
- For unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions;
- In the employee’s initial or terminal week of employment if the employee does not work the full week, or
- For unpaid leave taken by the employee under the federal Family and Medical Leave Act.
Reviewing exempt classifications and salary deduction practices now, before an issue surfaces, can save employers a great deal of time and money down the road.