Some of you probably know that my father is the former head football coach of the LSU Football Tigers. My Dad used to tell me that if you take care of the basics: knowing your assignment, blocking, and tackling, the wins will usually follow. In HR, like football, there are some basic concepts that we really need to get right if we are going to be successful. (Have you ever seen a more tortured segue from football to wage and hour law?)
One of the basic concepts that I have recently seen employers neglect is that an employee can almost never qualify as exempt from overtime under the FLSA if they are not paid on a salary basis. Over time, deductions from salaries seem get implemented without anyone noticing that they are jeopardizing the exempt nature of the position.
In order to qualify as exempt under the FLSA an employee usually must meet both the salary test and one of the white-collar duties tests (Administrative, Executive, Professional…). I say “usually” because the salary test does not apply to outside salespeople, teachers, doctors, and lawyers.
In order for a compensation system to qualify as a “salary”, it must guarantee the employee set compensation of not less than $684 per week regardless of the number of hours that the employee works or the quality of that work. The fact that an employee is never paid less than $684 per week will not satisfy the salary test if the employee is actually paid by the hour.
Making deductions from an employee’s salary for anything other than one of the recognized exceptions, (FMLA leave, full-day absence for personal reasons, sick leave, jury or witness fees….) will usually result in the loss of the exemption-meaning that the employee will be entitled to overtime. Depending upon the facts and who “caught” the error, this overtime might be owed for a few weeks or a few years. This is where many employers make a mistake, believing that they can reduce an employee’s salary for working less than 40 hours as long as the employee is paid at least $684 per week.
This does not mean that an exempt employee may only be paid a salary. The FLSA allows for an employer to pay an exempt employee compensation in addition to their salary in the form of bonuses, commissions, by the hour etc. There are, however, limits on how much “additional” compensation can be paid to an exempt employee in relation to her set salary without losing the exemption.
As I have indicated in my past updates, the Department of Labor Wage and Hour Division has become much more aggressive in their enforcement of the FLSA. I would strongly encourage you to take some time and audit your compensation practices to see if they comply with the FLSA. If you have not committed each position’s job duties and compensation plan to writing, I would encourage you to do so. In my experience, confusion about compensation leads to disputes and litigation. Putting the compensation plan into a written document signed by both the employee and the employer will help to reduce the chances of a misunderstanding.