Salary Reduction for an Exempt Employee: What are the rules?

At Consultstu, this is probably the most common question we receive from employers. The federal Department of Labor (and the Fair Labor Standards Act) states that exempt employees must be paid a fixed salary that cannot be reduced based on the quality and quantity of the employee’s work. To qualify for an exemption, employees must be paid not less than $684 per week (DOL is expected to raise this amount in 2023) on a salary basis. There are special salary rules associated with outside sales employees, teachers and employees practicing law and medicine. Computer professionals have a specific rule that allows them to be paid a salary, or hourly, as long as it is at least $27.63 per hour.

Getting paid on a salaried basis (Regulation 541.602) means an employee receives a pre-determined amount of compensation each pay period on a weekly, or less frequent, basis. There is a list of exceptions to the rule that an exempt employee must receive their full salary for any week in which the employee performs any work, regardless of the number of days or hours worked. Also, keep in mind that an exempt employee does not need to be paid for any workweek in which they perform no work. If an employer makes a reduction from an exempt employee’s salary because of operating requirements of the business, the employee is not considered to be paid on a salary basis (and overtime would need to be paid).

According to the Department of Labor, here is the list of permissible reductions: (1) less than a full week of work in the first and last week of employment; (2) full day off for personal reasons; (3) full day off for FMLA absence; (4) full day off for sickness or disability – if the employer has a bona fide paid leave plan; (5) full day disciplinary suspension for violating workplace conduct rules; (6) full day suspension for a major safety rule violation.

No pay deduction from a salaried employee is allowed for a partial day missed (a few hours off), but an employer can require a salaried employee to use available PTO to cover a partial absence. In addition, the following are not permissible deductions: (1) partial and full days for sickness or illness if the employer does not have a bona fide leave plan; (2) partial day suspensions; (3) holidays and other days the employer is closed (weather, emergency, lack of work); (4) partial or full days off for poor performance or poor quality of work; (5) jury duty or witness duty or temporary military duty (unless the absence is for a full week) – but salary can be offset for jury duty fees or military pay received). Read the DOL Fact Sheet #17G Salary Basis Requirement and the Part 541 Exemptions.

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