Exempt employees under the administrative, executive and professional classifications must be paid on a salary basis, which means they get the same salary each week, regardless of how many days or hours they work. Deductions can be made for certain absences, but only as permitted by the salary basis regulation.
Employers and employees are often confused about the salary basis requirement. For example, it does not mean that exempt employees can choose how many hours to work. An opinion letter from the U.S. Department of Labor’s Wage and Hour Division points out that employers can require exempt employees to work a minimum number of hours each week, work a specified schedule (such as arriving by a designated time) and even “make up” for partial-day absences. The following questions address some other common situations involving exempt employees and their salaries.
If the company is closed for a full week, the employer can give exempt employees the choice of using paid time off or taking unpaid days to cover the nonholiday days during that week. Exempt employees need not be paid for any workweek in which they perform no work. The employer may provide holiday pay for one or more days that week, but giving such compensation during an otherwise unpaid week doesn’t create an obligation to pay for the full salary, as long as the employees did not actually work.
The minimum required salary is not based on a 40-hour week and cannot be prorated for part-time employment. The employee cannot be exempt if he or she does not earn at least $455 per week (or more, as required by state law). The risk of lawsuits for improper classification may be lower, however, because such claims usually involve a failure to pay overtime. A part-time employee is unlikely to work more than 40 hours per week.
The exemptions are applied on the basis that each workweek constitutes a separate period of exemption. However, a determination of exempt status may require evaluating the job duties over a longer period. For example, a supervisor might not customarily and regularly direct the work of two or more employees during all workweeks because of seasonal fluctuations in staffing levels. Employers must keep in mind that a change in duties, responsibility or salary (even though temporary) may require a change in exemption status.
An employer can reduce an exempt employee’s salary, but not for a prohibited reason. The amount of the weekly salary can change at the employer’s discretion, but it must notify the employee of a reduction before the employee performs any work at the new rate. A retroactive reduction applied to time already worked would be a deduction from the agreed-upon rate, not a prospective reduction in wages. Also, the employer should not apply a salary reduction to evade state or federal laws. A temporary reduction in pay (e.g. for a week or two) may look like an attempt to avoid the restrictions on allowable deductions.
The federal regulations allow for prorating the salary in the first and last week of employment. If an employee quits (or is fired) in the middle of a week, the employer only needs to pay a partial salary that is proportional to the time worked, which can be an hourly equivalent. This provision offers one of the rare exceptions to the general prohibition against partial-day salary deductions.