Salaried Employee Law
An important labor law issue is whether an employee is a "salaried" employee. Salaried employees regularly receive a predetermined amount of compensation each pay period (on a weekly or less frequent basis), they must be paid the full salary for any week in which work is performed, and a salaried employee's compensation cannot be reduced because of variations in the quality or quantity of the work performed.
Many rights depend upon whether an employee is salaried. This includes whether an employee can receive overtime pay, computation of FMLA leave, or whether the employer can make certain deductions from a commission.
If an employee performs no work during the pay period, then the employer can be excused from paying a salary. However, if any work is done, then the employee should receive a full week’s salary. Under federal law, the only exception to this is that the first and last week’s salary can be prorated.
To be exempt under California law, an employee must also earn a monthly salary equivalent to no less than two times the California minimum wage for full-time employment. Minimum wage in California is currently $8.00 per hour.
Salary Basis and Pay Deductions
"Salary basis" means the employee's compensation may not be reduced because of:
Lack of work, variations in the "quality or quantity of the work performed," or disciplinary reasons except penalties imposed “for infractions of safety rules of major significance.” Deductions from pay for time missed may destroy an employee's exempt status. Employers may deduct from an employee's salary for an unexcused absence for a full day that work is not performed, when the absence is due to personal reasons other than sickness or accident. But the employer may not deduct for absences due to sickness or injury for less than a week or for less than a week's absence for jury duty, witness appearances or military duty, except they can claim a deduction for fees (such as jury duty fees) received by the employee.
Under the salary basis test, a salaried employee also does not fall within the many exceptions to the rule, such as the "safe harbor defense," the "fee basis test," or is in an excluded type of work.
Employers that suspend employees without pay may jeopardize the salary basis test. Suspension for violations of major workplace safety rules does not affect an employee's salaried status.
Salaried employees suspended for less than a full week are entitled to a full week's pay. On the other hand, salaried employees can be suspended for a full week without pay and retain their exempt status.
Regulations adopted by the U.S. Department of Labor permit disciplinary deductions in pay for a full day or more, imposed in good faith for infractions of workplace conduct rules.
Exceptions to the Salary Basis Test
The law provides employers with several defenses:
- "Window of Correction" Rule - This rule provides that, despite an improper deduction, the exemption is not lost if an employer i) has such a clearly communicated policy which prohibits improper deductions and includes a complaint mechanism, ii) reimburses employees for any improper deductions, and iii) makes a good faith commitment to comply in the future. In such a case, the employer will not lose the exemption for any employees unless the employer willfully violates the policy by continuing to make improper deductions after receiving employee complaints. This exists under both California and federal law.
- Fee Basis Payments - Administrative and professional employees may also be paid on a fee basis rather than on a salary basis. An employee is paid on a fee basis if the employee is paid an agreed sum for completing a single and unique job, regardless of the time required to complete the work. Payment on a fee basis is not available for a series of non-unique jobs repeated an indefinite number of times for which payment on an identical basis is made repeatedly. Payments based on the number of hours or days worked and not on the accomplishment of a single, unique task are not payments on a fee basis. Payment has to be at least $455 a week.
"No Pay Docking" Rule
The U.S. Department of Labor gives the following seven exceptions to the salary basis test's "no pay docking" rule:
- An absence from work for one or more full days for personal reasons, other than sickness or disability,
- An absence from work for one or more full days due to sickness or disability if deductions made under a bona fide plan, policy or practice of providing wage replacement benefits for these types of absences,
- To offset any amounts received as payment for jury fees, witness fees, or military pay,
- Penalties imposed in good faith for violating safety rules of "major significance", such as "no smoking" rules, rules in explosive plants, oil refineries, and coal mines,
- Unpaid disciplinary suspension of one or more full days imposed in good faith for violations of workplace conduct rules, such as rules prohibiting sexual harassment or workplace violence,
- Proportionate part of an employee's full salary may be paid for time actually worked in the first and last weeks of employment,
- Unpaid leave under the Family Medical Leave Act.