Almost all employers have employees labeled as exempt salaried employees who are not entitled to overtime for hours worked over 40 in a work week. Many challenges to exempt status arise from claims of misclassification – employees who claim that they are not performing exempt duties. Employers must take care to ensure that employees designated as exempt salary are indeed performing exempt duties and are not misclassified. Equally important, employers must also ensure that their exempt salaried employees are properly paid a salary as defined by the Fair Labor Standards Act (FLSA).
The “salaried” requirement is critical for exempt salaried employees to maintain their status under the FLSA. To be paid on a salary basis means that the employee receives a predetermined amount of compensation each pay period of at least $455 per week or $23,660 per year. No reduction of pay is allowed based upon the quality or quantity of work performed. An exempt salaried employee must also be under a bona fide a sick pay policy which provides at least five (5) paid sick days per year.
Generally, the exempt salary employee must receive full salary for any week in which any work is performed. There are however, limited exceptions to the full pay policy. Those limited exceptions are deductions for:
- Full day absences for personal reasons;
- Full day absences due to exempt employee’s illness;
- Disciplinary suspensions of one (1) or more days or either infractions of safety rules of major significance or written rules applicable to all employees;
- Workweeks where the first day and/or last day of employment which start in the middle of a week;
- Unpaid leave under the Family and Medical Leave Act;
- Offsetting amounts received as payments for jury fees, witness fees, loans, or overpayments.
Improper deductions can result in the loss of exempt status and overtime could be owed on highly paid employees.
Contributed by Donald H Scharg, Bodman PLC.