Fair
Labor Standards Act: A Trap for the Unwary
Since
the Fair Labor Standards Act became law over 50 years
ago, employers have struggled with the application of
the so-called white collar exemption.
The
FLSA provides exemptions from the minimum wage and overtime
requirements for employees who work in an executive,
administrative, or professional capacity. To qualify
for those white collar exemptions, an employee must satisfy
two criteria.
The
first focuses on the nature of the employee's "primary
duty" and whether the job in question involves the exercise
of discretion and judgment.
The
second criterion concerns the form of the employee's
compensation, in that the employee must be paid "on a
salary basis" in order to qualify for exemption. DOL's
regulations provide that an employee is compensated "on
a salary basis" if he regularly receives, on a weekly
or less frequent basis, a predetermined amount of pay
that constitutes all or part of his compensation and
that is not subject to reduction because of variations
in the quality or quantity of work done. Accordingly,
the employee must receive his full salary for any week
during which he performed services and remained willing
and able to do so throughout the week, even if the employer
did not have sufficient work to keep him fully occupied.
Unwittingly,
employers frequently violate the salary basis requirement
by reducing an employee's pay for certain periods of
absence. Such reductions can automatically disqualify
the employee for exemption regardless of the nature of
the duties being performed.
For
example, an employee loses his salaried status if pay
deductions are made for partial day absences, even where
he was away from work for purely personal reasons. The
same result occurs when the employer maintains a policy
that provides for a pay reduction if a salaried employee
has such an absence, despite the fact that the employer
has never actually made a deduction in that circumstance.
An employer may, however, require the employee to use
accrued paid leave or compensatory time for full or partial
day absences without jeopardizing his exemption.
DOL
regulations also anticipate some situations that might
occasionally pose a trap for the unwary employer. For
instance, an employer may not make a deduction if the
employee is absent for only part of a week for jury duty,
attendance as a witness, or temporary military leave.
The employer may, however, offset any amounts received
as jury or witness fees or military pay for a particular
week against the employee's weekly salary. DOL's regulations
further provide that an employee loses his exemption
if he is suspended without pay for less than a week,
unless the discipline is imposed for violating a work
rule of major significance relating to safety.
In
some circumstances, the FLSA permits deductions from
an exempt employee's compensation which will not affect
his salaried status. Accordingly, an employer may make
a deduction when the employee is absent for a day or
more for personal reasons, other than sickness or accident,
and for absences of at least a day that are occasioned
by sickness or disability if the employer maintains a
policy or plan that compensates the employee for salary
lost on account of those types of absences.
Such
a policy or plan may, moreover, establish a reasonable
cap on the number of paid days of absence that an employee
can obtain during the year. In addition, the employer
does not have to pay a salaried employee for a week during
which an absence results in the employee performing no
services. An employer may also reduce a salaried employee's
pay if an absence of any duration occurs as part of leave
taken pursuant to the Family And Medical Leave Act. As
you can see, the application of the salary basis criterion
is much more complicated than might appear at first glance.
Moreover, an unintentional misapplication of that criterion
can trigger liability for many thousands of dollars of
overtime compensation. Hence, employers should continuously
monitor how the pay of their white collar employees is
being treated.
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