Salary and Fee Basis – FLSA Exemptions


Most of the primary exemptions under the Fair Labor Standards Act (FLSA) require employees to be paid on a salary or fee basis. Only one allows the exempt employees to be paid on an hourly basis. The following is a breakdown of those requirements for each of the primary exemptions:

Exemption Salary Fee Hourly
Administrative
Computer Employee
Executive
Highly Compensated
Outside Sales
Professional

Additional Information




Salary Basis

To be paid on a salary basis, an employee must regularly receive on a weekly, or less frequent basis, a predetermined, fixed amount constituting all or part of his or her compensation. The minimum amount of this predetermined, fixed salary for exempt employees is $455 per week. Beginning December 1, 2016, employers will be required to pay exempt employees a salary not less than $913 per week. Starting on January 1, 2020, this minimum salary amount will change every three years according to a formula set forth in federal regulation changes issued on May 17, 2016. The predetermined, fixed salary amount cannot be reduced due to variations in the quality or quantity of work performed. Additionally, it may not include any cost for board, lodging, or “other facilities.” 29 CFR 541.600(a)

Beginning on December 1, 2016, up to 10 percent of an exempt employees salary may include nondiscretionary bonuses, incentives, and commissions that are paid quarterly or more frequently. Under these new standards, if an employees weekly salary plus nondiscretionary bonuses, incentives, and commissions do not equal 13 times the required weekly salary amount, an employer may make one final payment that is sufficient to achieve the requirement minimum salary amount no later than the next pay period after the end of the quarter. This additional payment can only be counted as part of the salary of the employee in the prior quarter. 29 CFR 541.602(a)(3), revised May 17, 2016.

Except in those situations discussed below, exempt employees must be paid their full salary for any week in which work is performed, regardless of the number of days or hours worked. They do not need to be paid for any weeks in which no work is performed, so long as the employer is not responsible for the lack of work. No deductions may be made if the exempt employee is ready, willing, and able to work, but no work is performed because the employer has not made work available.
29 CFR 541.602(a).

Definitions



Minimum Pay Period

Employers may not pay exempt employees for periods that are more frequent than once per week (e.g., daily), but they may pay them for periods that are less frequent than one week. For examples, employers may pay exempt executive employees biweekly at a salary of not less than $910, semimonthly at a salary of not less than $985.83, or monthly at a salary of not less than $1,971.66. 29 CFR 541.600(b) Beginning on December 1, 2016, these numbers will change as follows: biweekly – $1,826; semimonthly – $1,978; and monthly – $3,956. Starting on January 1, 2020, these numbers will change every three years according to a formula set forth in federal regulation changes issued on May 17, 2016



Other Facilities

The term “other facilities” includes, but is not limited to, the following items that may be provided by an employer:

  • meals
  • dormitory rooms
  • tuition furnished by a college
  • merchandise
  • transportation for commuting

29 CFR 541.606(b); 29 CFR 531.32.



Permissible Deductions

The following are permissible deductions from exempt employees’ salaries. 29 CFR 541.602(b). The deductions may be made based on the hourly or daily equivalent of the employee’s full weekly salary or any other amount proportional to the time actually missed by the employee. 29 CFR 541.602(c).

  • An employer may make deductions from an exempt employee’s salary if the employee does not perform work for a full day for personal reason, not including sickness or disability. If an exempt employee performs work for any part of a day, he or she must be paid for the full day, subject to any other exceptions listed below. 29 CFR 541.602(b)(1).
  • An employer may make salary deductions for absences of one or more full days due to an employee’s sickness or disability, including work-related accidents, if the deductions are made pursuant to a bona fide plan, policy, or practice providing for compensation for lost salary due to such sickness or disability. The employer does not need to pay any portion of the employee’s salary for full-day absences for which the employee receives compensation under the plan, policy or practice. Deductions for full-day absences due to sickness or disability may be made before the employee has qualified under the plan, policy, or practice, and after the employee has exhausted the leave allowed under the plan, policy, or practice. For example, if an employer provides a short-term disability insurance plan that allows for salary replacement of up to 12 weeks starting on the fourth day of absence, the employer may deduct pay for the three days of absence before the short-term disability plan becomes operative. Similarly, the employer may make deductions from the employee’s salary for any full-day absences that occur after the 12 week short-term disability benefits are exhausted. This same rule applies to situations where employees are provided salary replacement benefits under state disability insurance or workers’ compensation laws. 29 CFR 541.602(b)(2).
  • An employer cannot make deductions from an exempt employee’s salary when the employee participates in jury duty, serves as a witness, or is temporarily absent for military leave. However, the employer may deduct from the exempt employee’s salary any amounts received as jury fees, witness fees, or military pay. 29 CFR 541.602(b)(3).
  • An employer may make deductions from an exempt employee’s salary for penalties imposed for safety rules infractions of major significance. Safety rules of majority significance include those intended to prevent serious workplace danger. 29 CFR 541.602(b)(4). The deduction for this penalty may be made in any amount. 29 CFR 541.602(c).
  • An employer may make deductions from an exempt employee’s salary for unpaid disciplinary suspensions of one or more full days for infractions of workplace conduct rules. The suspension must be made in good faith and be based on written policies applicable to all employees. 29 CFR 541.602(b)(5).
  • An employer is not required to pay an employee his or her full salary for the employee’s first or last week of employment, if it is less than a full week. The employer may pay a proportionate amount of the employee’s salary for the time actually worked in the first and last week of employment. An employer may pay meet this requirement by paying an hourly or daily equivalent of the employee’s full salary. Employees are not paid on a salary basis as required if the employees work for a few days and the employer pays only pays them a proportionate part of their weekly salary. 29 CFR 541.602(b)(6).
  • An employer may make deductions from an exempt employee’s salary for unpaid leave taken under the Family and Medical Leave Act (FMLA). When an exempt employee takes unpaid FMLA leave, an employer may deduct a proportionate part of the full salary for the time leave is taken. For example, if an employee normally works 40 hours per week and takes four hours of unpaid FMLA leave, the employer would be allowed to deduct 10 percent of the employee’s normal weekly salary. 29 CFR 541.602(b)(7).



Minimum Guarantee Plus Extras

Employers may pay exempt employees by alternative compensation methods so long as they guarantee the exempt employees the legally requirement minimum salary. For example, an employer may pay an employee sales commission without the employee losing his or her exempt status so long as the employee is guaranteed the legally required minimum salary independent of any commission amounts. Additionally, an employer may pay an exempt employee additional compensation for work performed beyond normal work hours without losing the exemption. This additional compensation may be paid on any basis, including a flat sum, a bonus, or hourly at straight-time, time and one-half, or any other variation. 29 CFR 541.604(a).



Computing Salary on an Hourly, Daily, or Shift Basis

Employers may compute an exempt employees salary earnings on an hourly, daily, or shift basis, so long as the employee earns at least the legally required minimum salary and there is a reasonable relationship between the employee’s guaranteed salary and the actual amount the employee actually earns. A reasonable relationship exists if the amount earned by the employee on an hourly, daily, or shift basis is roughly the same as the salary he or she is guaranteed. The reasonable relationship must be met only in situations where the employee’s salary is computed on an hourly, daily, or shift basis. It does not apply in situations where an employee earns commission in addition to their guaranteed minimum salary. 29 CFR 541.604(b)



American Samoa Exception

Employers in American Samoa, other than the federal government, need only pay exempt employees $380 per week. 29 CFR 541.600(a) Beginning December 1, 2016, employers will be required to pay exempt employees a salary not less than $767 per week. Starting on January 1, 2020, this minimum salary amount will change every three years according to a formula set forth in federal regulation changes issued on May 17, 2016



Fee Basis

Employers may pay exempt administrative and professional employees on a fee basis instead of a salary basis, so long as the employees receive the equivalent of a minimum of $455 on a weekly basis (Beginning December 1, 2016, employers will be required to pay exempt employees on a fee basis not less than $913 per week. Starting on January 1, 2020, this minimum fee basis amount will change every three years according to a formula set forth in federal regulation changes issued on May 17, 2016). An employer meets the fee basis requirement if the employee is paid an agreed sum for a single job regardless of the amount of time need to complete the job. Additionally, each job must be unique in nature with varying compensation amounts as opposed to routine and indefinite tasks (piece meal) that are compensated at the same rate each time. 29 CFR 541.605(a) To determine if the an exempt employees paid on a fee basis is earning the required minimum, the amount the employee is paid for a job is divided by the total number of hours required to complete it. If the rate earned results in the employee being paid a minimum of $455 for 40 hours of work, the exemption requirement is met (Beginning December 1, 2016, employers will be required to pay exempt employees on a fee basis not less than $913 per week. Starting on January 1, 2020, this minimum fee basis amount will change every three years according to a formula set forth in federal regulation changes issued on May 17, 2016). 29 CFR 541.605(b)


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