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November 28, 2011

FLSA Q&A’s – What Might Cause Exempt Employees to Lose Their Exempt Status Under the FLSA?

Filed under: General HR Buzz11:13 am

With our tummies full following Thanksgiving, certainly our brains must also be nourished.  So I am going to begin this Monday morning by posting a question regarding the Fair Labor Standards Act (FLSA).  This has always been a complicated law and continues to be so.  For the next few weeks, I am going to be blogging on some of the questions that are commonly asked regarding various provisions of the law.  I welcome your feedback and would be happy to address any specific questions you may have, so please feel free to comment and post your questions!!

What might cause exempt employees to lose their exempt status under the FLSA such that they are eligible for overtime pay?

Docking an Exempt Employee’s Pay for Being Late or Absent. Generally, exempt employees must be paid on a salary basis that may not be reduced based upon the quantity or quality of work. Therefore, docking pay conflicts with the concept that an exempt employee be paid not for the time spent on the job, but for the services performed. Exceptions under which a company may “dock” an exempt employee’s pay without losing the salaried status may include:

  • The employee is absent for a day or more for personal reasons other than sickness or accident;
  • The employee is absent for a day or more due to sickness or disability if the deduction is made in accordance with a plan for compensating such losses and the employee is not yet eligible for sick leave or have exhausted the leave.
  • The employee is penalized for major safety violations.
  • Unpaid disciplinary suspensions of one or more full days that are imposed for serious violation of workplace rules.
  • The Family and Medical Leave Act (FMLA) permits deductions from salary for absences due to reasons covered by the law where benefits have been exhausted. However this exception must be strictly and narrowly followed.
  • The employee did not work a full week during the first or last week of employment.

Requiring an Exempt Employee to Use Accrued Leave on An Hour for Hour Basis. The Department of Labor has taken the position that exempt employees’ accrued leave may be charged in less than 1 day increments as their salaries would be unaffected. However, several courts have taken the position that reducing leave in partial day increments (especially very small increments) may violate the salary basis test. Confusion still exists surrounding this issue.

Partial Week Absences Due to Jury Duty or Military Leave. Docking an exempt employee for partial week jury, witness, or military reserve absences must be avoided to retain the exemption.

Hourly Based Overtime and Incentive Pay. Extra compensation for exempt employees would threaten their exempt status. However, the DOL in its revised 2004 regulations made clear that providing compensation (in addition to the guaranteed weekly salary) such as commissions, bonuses, payments based on straight hourly amounts, time and one-half or other basis is acceptable.



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