The salary-based test is a method used to determine whether an employee qualifies for certain exemptions from overtime pay under the Fair Labor Standards Act (FLSA). To be exempt from overtime, an employee must meet specific requirements regarding job duties and be paid a salary that meets or exceeds a specified minimum. The salary basis test is one way to satisfy the salary requirement.
The salary-based test stipulates that employees must be paid a fixed salary irrespective of the quality or quantity of their work.
What Qualifications Do You Need to be a Salaried Employee?
A salaried employee is any worker who is paid a fixed amount of money on a regular basis. It can be bi-weekly or monthly. Most salaried employees are not eligible for overtime pay unless they make less than $35,568 per annum.
However, an employee can qualify for overtime if their employer misclassifies them. As such, employers must always review and understand salaried employee qualifications at the state level.
To qualify for the salary-based exemption, an employee must:
Perform exempt job duties. In order to meet the "duties" requirement, employees generally must have executive, administrative, or professional responsibilities as defined by regulations issued by the Department of Labor.
Receive a fixed, predetermined salary that is not subject to reduction because of variations in the quality or quantity of work performed. An employer may pay an hourly rate, commission, or piece rate as long as it pays at least $684 per week on a salary basis.
For instance, a computer programmer may meet this standard if their primary duty is applying systems analysis techniques and procedures to determine users' hardware, software, or network needs, even if they don't hold a managerial title. However, others who write code all day would not qualify because their work isn't sufficiently intellectual and requires little discretion and judgment.
What is the Minimum Salary an Employee Can Earn?
The Fair Labor Standards Act (FLSA) sets the minimum wage that stipulates employers must pay nonexempt employees for each hour worked.
As of July 24th, 2009, the federal minimum wage is $7.25 per hour. Many states have enacted laws that set a higher minimum wage than the federal level. Therefore, employers must comply with whichever law provides more significant employee benefits.
Federally, salaried employees must be paid a minimum of $455 per week and not less than $35,568 yearly. If a worker is paid less, they are entitled to overtime pay.
Are Salaried Workers Entitled to Overtime Pay?
Yes, salaried workers are entitled to overtime pay if they work more than 40 hours weekly and make more than $684. Employers are required to pay nonexempt workers at least the federal minimum wage for each hour they work up to 40 hours per week under the Fair Labor Standards Act (FLSA).
If an employee works more than 40 hours a week, he or she is entitled to earn 1½ times his or her regular hourly rate for those extra hours worked. This overtime compensation can be paid in cash or through comp time off at 1½ hours earned for each overtime worked. However, an employer cannot force employees to take comp time instead of receiving overtime pay.
Must Salaried Employees Work a Minimum of 40 Hours Per Week?
No, salaried employees are not required to work a minimum of 40 hours per week. This is because they are salaried, and their hours change weekly. As such, some weeks, they may work more than 40 hours or less; however, this causes no change in their paycheck.
Can Salaried Workers Refuse to Work Extra Hours?
Yes, salaried workers can refuse to work extra hours without penalty since overtime pay does not apply to them. However, this will depend significantly upon relevant labor laws, jurisdiction, and the terms and conditions of an employment contract, as they might also limit employee flexibility depending on specific circumstances in each situation.
What Instances Can Cause Salaried Employees' Pay to be Docked?
The salary of a salaried employee may only be docked in minimal circumstances, such as:
Absences: An employer can legally reduce their worker's salary if they are away from work for several days for personal reasons.
Partial Workweek: Employers can also reduce the payment if the worker does not work full-time, as previously discussed. For instance, if an employee resigns before a month ends.
Furloughs: An employee is considered furloughed if they don't work for a whole week. An employer is legally entitled to dock their pay for that week.
The salary of a salaried exempt employee may not be reduced because of variations in the quality or quantity of work performed. An employer who violates this provision may be penalized under the Fair Labor Standards Act (FLSA).
Who is Exempt from the Salary-Based Test?
The following employees are exempt from the salary-based test:
Outside sales employees
Highly compensated employees
Certain computer professionals
Generally speaking, any post that requires expertise and autonomy qualifies for exemption from overtime payments if it meets other criteria set forth by FLSA regulations regarding salaries and job duties. These include but are not limited to managerial positions for software engineers, accountants, lawyers, doctors, professional occupations, physician assistants, nurses, and technical jobs.
Employers should consult legal counsel before making decisions about classifying workers because there could be potential pitfalls if state-level statutes supersede federal law categories.