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Exemptions from Wage and Hour Requirements: Salary Basis

Three of the exemptions that we will discuss in upcoming posts (executive, administrative and professional) require that the employee be paid on a salary basis. This post will help you understand that critical concept.

Both federal and state law have the same general definition of what it means to be paid a salary. The employee must regularly receive each pay period a predetermined amount that is not subject to reduction because of variations in the quality or quantity of the work performed. An employee who earns $750 per week no matter how many hours she works has earned a salary within that definition. An employee who is paid at a rate of $750 per week, but earns only $600 if she works four days in a week, has not. A salaried employee is not paid for the amount of time spent on the job, but for the general value of services performed.

Minimum Salary

Under federal law, an employer must earn a salary of at least $455 per week to meet the salary basis test. 29 CFR section 541.600. Under California law, the minimum salary is twice the minimum wage for  a 40-hour work week. See 9 Cal. Code Reg. section 11040(1). At the current minimum wage of $8 per hour, the minimum salary is $640 per week.

Missed Days

One important exception to the general rule is that a salaried employee who misses a day of work for personal reasons other than disability or illness has not earned the portion of her salary attributable to that day. But, if the employee works part of a day, she has earned the portion of the salary attributable to that day, no matter why she misses work for the rest of the day. See 29 CFR section 541.602. The employer may deduct the salary attributable to a partial day’s absence from a vacation leave bank, because the employee will still receive the designated salary, even though she loses a portion of her vacation benefit. See Conley v. Pacific Gas & Electric Co., 131 Cal. App. 4th 260, 31 Cal.Rptr.3d 719 (2005).

Employers may deduct the pay attributable to any days not worked before the commencement of employment and after its termination, even if the employee has performed some work during that work week.

Employers may not deduct from an exempt employee’s salary for days missed because of jury duty, temporary military leave or attendance as a witness. Although the federal regulations permit deductions as penalties for infractions of safety rules of major significance and for suspensions for infractions of workplace conduct rules, California law does not permit such deductions.

Sick Leave

Although the salary basis test bars deductions for days missed because of illness or disability, there is an exception if the employer offers a bona fide plan that offers a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by sickness or disability. Employers may deduct from sick leave for full and partial day absences due to illness. If the employer offers such a plan, it may deduct from the weekly salary for full day absences that occur before the employee qualifies for paid leave, and after she has exhausted the paid leave available under the plan. Sumuel v. ADVO, Inc., 155 Cal. App. 4th 1099, 66 Cal.Rptr.3d 622 (2007). The California Labor Commissioner has provided a detailed explanation of how this exception works in conjunction with rules regarding deductions from vacation leave banks in a November 23, 2009 opinion letter.
Under California law, a sick leave plan is not bona fide unless it provides for paid leave that is restricted to illness. A paid time off program that combines sick leave with vacation pay does not qualify.
Extra Pay for Extra Work

An employer does not destroy the salary basis of an employee’s compensation by paying more than the weekly salary if the employee works more hours beyond the normal workweek. The extra compensation for extra hours may be paid on any basis, time and a half, straight time, half time, or flat sum.