The Salary Basis Rule And The Deductions That Break It

Most overtime exemptions require that the employee be paid on a salary basis, meaning a predetermined amount that does not fluctuate with hours worked. Deductions that break that principle can jeopardize the exemption.

A salary is supposed to be predetermined

The salary basis concept means the employee receives a fixed amount for any week in which work is performed, regardless of how many hours that took.

The point of the arrangement is that the employer buys the job rather than the hours. Reducing pay for a short week contradicts that premise.

Working part of a week is generally enough to trigger the full amount, subject to defined exceptions. Employers cannot prorate at will.

Some deductions are permitted and most are not

Certain deductions are recognized as consistent with salary basis, typically including full-day absences for personal reasons and absences under a bona fide sick leave plan.

Deductions for partial-day absences, for slow business, or for the quality or quantity of work generally are not permitted for exempt employees. Docking an hour for arriving late is the classic example.

The list of permitted deductions is specific and technical, and it differs in some states. It is not a general test of reasonableness.

Improper deductions can put the exemption at risk

Where an employer makes improper deductions as an actual practice, the exemption can be lost for the affected employees. Losing it makes overtime payable for the relevant period.

Isolated or inadvertent deductions are treated differently from systematic ones, particularly where the employer has a clear policy and reimburses promptly on discovery.

Because the consequences are broad, employers usually maintain written policies prohibiting improper deductions and a route to report them. Using that route is the first step for an employee.

Benefit time is handled differently from pay

Requiring an exempt employee to use accrued leave for a partial-day absence is generally treated as a benefits question rather than a pay deduction. The salary itself is unaffected.

That distinction surprises people, because using leave feels like a cost. The rule is concerned with the amount paid rather than with the leave balance.

Where the leave balance is exhausted, the analysis changes and the ordinary deduction rules apply again. The interaction is a common source of error.

What to check if your salary varies

A salary that changes week to week alongside hours is a signal worth examining. Consistent variation is inconsistent with the salary basis premise.

Payslips are the evidence, since they show what was actually paid each period. Comparing several periods reveals a pattern more clearly than any single one.

Rules on this vary by state and change over time, and the analysis is fact-specific. A labor agency or an employment attorney is the appropriate place to take a concrete case.