Regulations Governing Exemptions to the Overtime Standards of the Fair Labor Standards Act (FLSA)

January 2005
Frost Brown Todd Health Law Newsletter

The last issue of the Health Law Advisory contained a brief article on the new Department of Labor (DOL) regulations governing exemptions to the overtime standards of the Fair Labor Standards Act (FLSA).  The regulations became effective August 23, 2004.

The new regulations permit employers to exempt certain employees from the FLSA overtime requirements if: 1) the employee earns $455 or more per week ($23,660. annually); 2) the employee performs executive, administrative, professional, computer, or outside sales duties that are specifically identified in the regulations; and 3) the employee is paid on a “salary basis.”

To be considered to be paid on a “salary basis”, the employee must regularly receive a predetermined amount of pay constituting all or part of the employee’s compensation.  The payments may be made weekly or on a less frequent basis according to the employer’s payroll practices.

 While most employers understand the general principal of paying exempt employees on a salary basis, they miss the important rule that, apart from seven exceptions that will be addressed at the end of this article, an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days worked.  In addition, an employee’s salary may not be reduced because of variations in the quality or quantity of the work performed.  Employers who make improper deductions from an employee’s salary risk losing the overtime exemption not only for that employee but for all other employees in the same job classification working for the same managers responsible for the actual improper deductions.

There are situations in which it is proper to make deductions from a salaried employee’s pay.  These are the seven exceptions allowed by the regulations:

  1. deductions from pay may be made when an employee is absent from work for one or more full days for personal reasons, other than sickness or disability;
  2. deductions from pay may be made for absences of one or more full days occasioned by sickness or disability (including work-related accidents) if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by such sickness or disability;
  3. while an employer cannot make deductions from pay for absences of an exempt employee occasioned by jury duty, attendance as a witness or temporary military leave, the employer can offset any amount received by an employee as jury fees, witness fees, or military pay for a particular week against the salary due for that particular week without loss of the exemption;
  4. deductions from pay of an exempt employee may be made for penalties imposed in good faith for infractions of safety rules of major significance;
  5. deductions from pay of exempt employees may be made for unpaid disciplinary suspensions of one or more full days imposed in good faith for infractions of workplace conduct rules;
  6. an employer is not required to pay the full salary in the initial or terminal week of employment.  Rather an employer may pay a proportionate or part of the employee’s full salary for the time actually worked in the first and last week of employment;
  7. an employer is not required to pay the full salary for weeks in which an employee takes unpaid leave under the Family and Medical Leave Act.

The new FLSA regulations are intended to make it easier for employers to understand and comply with the FLSA.  However, some of the rules are still complicated and difficult to apply.  For guidance in applying the FLSA regulations to your workforce, please contact a Frost Brown Todd Labor and Employment attorney.

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