Special Report — Complying with Wage and Hour Regulations

The SESCO Report July/August, 2022 (Part 1 of 3*)

Common Misconceptions and Compliance Issues

SESCO is available through a Professional Service Agreement or through a per diem fee to conduct a thorough Wage and Hour as well as HR and employment law audit. Contact SESCO to learn more about our Professional Service Agreement and services provided to clients in all industries across the country — [email protected] or 423-764-4127.

Salary Basis

To qualify for exemption from overtime, Administrative, Executive and Professional employees have to be paid at least $684 per week on a guaranteed basis. Note that the Outside Sales Exemption requires no guaranteed salary, more less minimum wage. The Computer Exemption requires at least $684 per week on a salaried basis or paid on an hourly basis at a rate not less than $27.63 per hour.

Misconception 1: If an employee is paid on a guaranteed salary basis of at least $684, regardless of duties, they are exempt from overtime. This is incorrect as to be exempt from overtime under the white-collar exemptions as noted, the employee must meet the duties test as set forth under each exemption by the FLSA and meet the salaried basis requirements.

Misconception 2: Nonexempt employees cannot be paid on a salaried basis. Nonexempt employees are simply required to receive overtime for hours worked in excess of 40 hours per week (federal basis) based on their regular rate of pay. They also must meet at least federal or state minimum wage requirements. As such, a nonexempt employee can be paid on a salaried basis, salary plus commission, commission only, hourly plus commission or other types of pay plans. As long as the employee receives on average for each hour worked minimum wage and receives time and one-half of their regular rate for hours in excess of 40 hours per week, the pay plan is compliant.

In computing the regular rate for overtime purposes, the regular rate is determined by totaling all monies earned for the given workweek (hourly/salary wages, commissions and bonuses, spiffs and other incentives). These total earnings are then divided by total hours worked. The additional half-time is calculated by multiplying the overtime hours times half-time of this regular rate.

Misconception 3: Under the salaried basis rule, we cannot deduct from the salary for any reason. An exempt employee's salary can be reduced for specific reasons. These include:

• Deducting pay for violations of safety rules
• Suspending an exempt employee for disciplinary reasons
• Reducing pay, even on a partial day's absence for intermittent family and medical leave
• When an exempt employee is out sick for the whole day and does not have any accrued or earned sick/leave/PTO time

Please note that the only time we can deduct from the salary in partial day's work is for intermittent family and medical leave. However, we can require the exempt salaried employee to utilize any earned, unused sick time/leave/PTO. Once exhausted, an exempt employee missing time in partial day increments must be paid for the full day.

If out of accrued/earned time, an employer can deduct in full-day increments for those reasons as noted above.

Misconception 4: We can make deductions from an exempt employee's salary while they are out for jury duty. An employer cannot make deductions from the pay of an exempt employee for absences caused by jury duty, attendance as a witness or a temporary military leave. However, an employer can offset fees received such as jury fees, witness fees or military pay for a particular week against the salary for that week.

Misconception 5: If an exempt employee is separated from the company, we must pay him/her for the full week of salary regardless of the number of days worked. An employer is not required to pay the full salary in the first or last week of employment if the employee does not work the full week. You are only required to pay the salary for the actual days worked.

Misconception 6: If we have exempt employees working more than 40 hours or performing extra duties and we pay them overtime or additional monies based on hours of work, they lose their exemption status. The only requirement for an exempt position's compensation is the guaranteed salary basis of $684 per week (less Outside Sales Exemption). An employer can provide additional monies based on hours worked, commissions based upon results, etc. without losing the exemption status.

*Tune-in next newsletter for Part 2 of 3