What Are the Requirements for Someone to Be Paid a Salary?
Paying your employees a salary is an acceptable practice under the Fair Labor Standards Act, or FLSA, which defines the federal labor laws. However, you should be aware of the differences between a salaried-exempt and a salaried-nonexempt employee. The definition of an exempt employee under the Department of Labor is one who is not covered by the federal overtime and minimum wage laws. A nonexempt employee is someone who is covered by the federal overtime and minimum wage laws. The regulations for nonexempt salaried employees are not as stringent as the requirements for salaried-exempt employees.
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Salaried-Exempt Employees – Pay Requirements
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An exempt employee must receive a fixed salary of $455 per week or more to meet the FLSA requirements. Your state may have a different salary requirement; if so, you must use whichever minimum salary requirement is higher. You cannot reduce an exempt employee's salary for absences of less than one entire day. If an exempt employee works at all during a week, you must pay him his full salary for that week, except during his first and final weeks, but you do not have to pay him if he is absent for an entire week. If you have no work for an exempt employee and send him home for a day or two, you cannot adjust his pay. However, if your business is shut down for one full week or more, you do not have to pay your exempt employees.
Salaried-Exempt Employees – Job Duties
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Although nonexempt employees are not required to meet specific job duties, the FLSA has a narrow definition of the type of duties an exempt employee must perform. Exempt employees are always "white-collar" workers, and employees whose primary duties involve manual labor cannot be exempt. Professionals, such as teachers and lawyers, who have accumulated an advanced body of knowledge in the science or educational fields, may be exempt. Executives and administrators may qualify for exemption if their duties are primarily the management of the company's business and they have substantial input regarding important decisions. Creative professionals, such as artists and writers, may qualify for exemption. Field-based sales personnel typically qualify, and certain computer professionals may qualify as exempt if they earn $27.63 or more hourly or if they earn at least $455 weekly.
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Salaried-Nonexempt Employees – Pay Requirements
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When converted to an hourly rate, the salary you pay a nonexempt employee cannot be less than the federal minimum wage or your state's minimum wage if the latter is higher than the federal minimum wage. Divide the employee's equivalent weekly salary by the number of hours per week the salary covers. To illustrate, if you hire an employee to work 42 hours each week for a salary of $420, her hourly rate is $10. However, if she is to work 60 hours each week for the same salary, her hourly rate is only $7. Because this is less than the federal minimum wage, the arrangement would violate the FLSA. You may reduce a nonexempt employee's salary for any time she does not work, whether she is late, leaves early or is absent for an entire day.
Salaried-Nonexempt Employees – Overtime
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You have no requirement to pay overtime to your exempt employees, but you must pay nonexempt employees overtime if they work more than 40 hours during the week. It does not matter whether your agreement with the employee requires him to work more than 40 hours in return for a fixed salary; his salary covers only the straight-time hours he works. If you pay him on a monthly or biweekly basis, you cannot average his work hours across more than one week. The hourly rate you use as the basis for a nonexempt employee's overtime rate can never be less than the prevailing minimum wage.
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References
- U.S. Department of Labor: Handy Reference Guide to the Fair Labor Standards Act
- U.S. Department of Labor: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA)
- U.S. Department of Labor: Fact Sheet #17G: Salary Basis Requirement
Resources
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