Am I paid on a salary basis?

“Salary” is a word that gets used to mean a lot of different things.  Some people refer to their pay as their “salary” no matter how the total amount of compensation earned is determined.  A lot of job applications will ask for a “salary request,” or job applicants might write “salary negotiable,” without any thought given to whether the pay structure will actually be one that would legally be considered a “salary.”  When it comes to wage and hour lawsuits, a lot of people still misuse the word “salary,” including some lawyers and judges!  As a matter of law, what does it mean for an employee to be paid on a salary basis?

According to the Department of Labor, the government body charged with enforcement of the Fair Labor Standards Act, being paid on a “salary basis” means that an employee regularly receives a predetermined amount of compensation on a weekly or less frequent basis.  A salary can be a set minimum amount that an employee receives each week, every two weeks, every month, every year, or some other period of time that is no less than a week.  An employee is not paid on a salary basis if the amount paid can be reduced due to changes in the quality or quantity of the employee’s work, with a few notable exceptions.  So, for example, if you have an employee who is expected to work 5 days totaling 40 hours per week, and you reduce their pay because they work 5 days totaling 37 hours in a specific week, that employee is not being paid on a true salary basis.  Similarly, if you reduce an employee’s pay because they do not get all of their assigned work done in a certain week, that employee is also not paid on a salary basis.

An employee who is legally considered to be paid on a proper salary basis may still have some variations in their pay.  For example, employers may use nondiscretionary bonus and incentive payments (such as commissions) to count towards a certain percentage of an employee’s pay without invalidating the pay arrangement as a “salary” arrangement under the FLSA.  For example, if an employee is paid $650 per week plus an extra $50 per week for perfect attendance, the employee may still be considered to be paid on a salary basis.  If, however, the incentive payment makes up too much of the employee’s total pay, or leaves the amount awarded to the employer’s discretion instead of following a predetermined formula, the incentive payment changes the pay designation such that it is no longer considered to be a salary.  An employer may award discretionary bonuses on top of a salary, but those bonus payments cannot count as part of the salary for purposes of a determination that the employee is considered salary-exempt.

There are certain circumstances where an employer may legally deduct from an employee’s salary without invalidating the salary designation.  One type of allowable deduction is for when an employee misses one or more full day of work for personal reasons other than health-related reasons, or for health-related reasons pursuant to an allowable sick time plan.  An employer may also deduct from a salary to offset payments employees receive as jury or witness fees, or for military pay, to reflect other compensation earned during the pay period.  Employers may deduct from a salary for good faith penalties for safety or disciplinary violations by the employee.  Employers are also not required to pay a full week’s salary for the first or last week of an employee’s employment, or for time when an employee takes leave under the Family and Medical Leave Act.

Other than the reasons listed above, most other deductions from an employee’s salary would constitute impermissible deductions which would invalidate the designation of the pay being a “salary.”  For example, an employer may not deduct from a salaried employee’s pay due to working fewer hours (assuming a full day of work is not missed) or based on poor work quality.  An employer may not deduct from an employee’s salary due to the operating requirements or availability of the business, meaning an employer cannot tell a salaried employee to stay home and deduct a full day of pay because work is slow or there is a problem with the worksite such as a power outage.  An occasional improper deduction may not complete invalidate a salary designation, but if an employer has an actual practice of making improper deductions from salary payments then the salary designation is lost.

It’s important to note that being paid on a true “salary basis” under the Fair Labor Standards Act does not automatically mean that an employee is considered to be exempt.  Many FLSA exemptions require that an employee be paid on a salary basis as one element of an exemption, but there are other requirements that must also be met for an exemption to apply.  It is legal to classify an employee as “salary non-exempt,” meaning the employee is paid on a salary basis and is not considered to be ”exempt” from the minimum wage and overtime requirements of the FLSA, but that employee must still receive an overtime premium.  So, if a salaried non-exempt employee works 45 hours in a week, that employee would receive their regular weekly salary PLUS overtime pay for the extra five hours.  The overtime pay would be determined by finding the regular rate of pay (in this case, the salary divided by forty unless there’s circumstances that would make a different regular rate of pay more appropriate) times one and one-half, multiplied by the number of hours worked in excess of forty per week.

If you have questions about your pay or believe that you have been paid improperly under the FLSA, contact Gold Star Law for help.