Salary Basis
Being paid on a salary or fee basis is the quid pro quo of exempt employees. They aren’t paid overtime for working more than 40 hours a week; in exchange, their employer must provide a guaranteed salary, which can’t be reduced when they work fewer than 40 hours. This reflects the understanding that exempt employees have the discretion to manage their time and are not answerable for hours worked or the number of tasks performed. Rather, they’re paid for the general value of the services they provide. In addition, you may not deduct pay for time when work isn’t available if the salaried worker is ready, willing and able to work.
Under the DOL’s old regulations, the minimum salary a worker must earn to qualify as exempt was $455 per week or $23,660 annually.
Under the new regulations, these salary rates begin at $913 per week or $47,476 per year. Up to 10 percent of the salary threshold for non-highly compensated employees (see page 6) can be satisfied by non-discretionary bonuses, incentive pay or commissions—payments that must be made on at least a quarterly basis.
The salary threshold will automatically update every three years based on overall American wage growth, so as to keep current with inflation rates. It will be tied to the lowest-wage region of the country.
Other characteristics of being paid on a salary basis:
- You pay the employee a set salary even if she works only part of the week.
- You can’t dock her pay as a disciplinary measure unless the employee has committed a serious safety infraction (breaking a rule designed to prevent endangering the facilities or other workers). The DOL regulations state that you may deduct for “unpaid disciplinary suspensions of a full day or more imposed in good faith for infractions of workplace conduct rules,” such as sexual harassment or workplace violence. (You’ll need, however, a written policy that you apply uniformly to all workers.)
- The employee can’t be docked for a partial-day absence.
- You must pay the employee for any day he’s ready, willing and able to work.
The DOL recently issued opinion letters “clarifying” when you must pay exempt workers for weather-related closings and delays. Essentially, if you shut down the office for at least a full day but less than a full week, no deductions should be made. However, if your company tells exempt workers that they must take the day as a vacation day and they have available vacation time, you may dock pay without risking exempt status. The DOL explained that nothing requires employers to give vacation days, so by its logic, employers are free to set the rules for when they take time off. If a worker doesn’t have a vacation day left, no deduction should be made. The answer is different if the office is open but the employee doesn’t come to work for an entire day: Then you may deduct from her salary the equivalent of a day’s pay. If she simply shows up late, you can’t make a deduction.
Make sure you abide by the salary rules. If you don’t, the employee is no longer exempt, no matter what his duties and responsibilities are. Destroying his exemption can make you liable for two years’ overtime pay for any hours worked beyond 40 per week.
Nonexempt: Blue-Collar Workers, First Responders
Some workers will be entitled to overtime no matter how highly compensated they are. Under the regulations, workers who “perform work involving repetitive operations with their hands, physical skill and energy” can’t be classified as exempt. If you have workers who gain the skills and knowledge required for their jobs through apprenticeships and on-the-job training, they’re probably entitled to overtime.
The regulations list examples of such blue-collar jobs:
In addition, most people involved in law enforcement will continue to be eligible for overtime pay, including police officers, detectives, deputy sheriffs, state troopers, investigators, correctional officers, parole and probation officers, park rangers, firefighters, paramedics, emergency technicians, ambulance personnel and rescue workers.
If their duties are to prevent, control or extinguish fires, prevent or detect crime, conduct investigations, perform surveillance, pursue suspects or supervise them before or after conviction, they’re probably entitled to overtime no matter how well they’re paid.
Thus, first responders and others on the front lines of public safety will likely continue to be paid for the extra hours worked. Although many first responders may hold college degrees, the DOL pointed out, a four-year degree is generally not a prerequisite for employment in their field; therefore, they don’t cleanly fit into any exempt category.
Duties Tests
Workers who earn at least $913 a week may be exempt from overtime pay if they meet the appropriate tests for their classification: executive, administrative or professional. The last category is subdivided into learned professional and creative professional. In addition, special tests control the classification of certain computer employees and outside sales employees.
‘Highly Compensated Worker’ Exemption
The DOL rules feature an exemption category for “highly compensated employees.” Essentially, any employee earning more than $134,004 a year and who regularly performs even one of the exempt duties of an executive, administrative or professional employee is precluded from earning overtime. To qualify as a highly compensated exempt employee, the person must meet the following tests:
- Earns total annual compensation of $134,004 or more
- Primary duty includes performing office work or non-manual duties.
- Customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.
Thus, for example, an employee may qualify as an exempt highly compensated executive if she customarily and regularly directs the work of two or more other employees, even though the employee doesn’t meet all the other requirements in the standard test for exemption as an executive. The required compensation of $134,004 or more may consist of commissions, nondiscretionary bonuses and other nondiscretionary compensation earned during a 52-week period. It doesn’t include credit for board or lodging, payments for medical or life insurance, or contributions to retirement plans or other fringe benefits.
Like the $47,476 threshold, the $134,004 salary rate will automatically update every three years based on overall American wage growth, so as to keep current with inflation rates.
Source: http://www.businessmanagementdaily.com/