The University of Tennessee, Knoxville

Tennessee County Municipal Advisory Service

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Salary Basis Test

Reference Number: MTAS-921
Tennessee Code Annotated
Reviewed Date: July 25, 2017
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An employee is considered to be paid on a “salary basis” if the employee regularly receives each pay period, on a weekly or less frequent basis, a pre-determined amount constituting all or part of the employee’s compensation, which is not subject to reduction because of variations in the quality or quantity of work performed. An exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked unless subject to the exemptions provided by the law. (29 C.F.R. § 541.602)

The prohibition against deductions from pay is subject to the following exceptions:

  1. Deductions from pay may be made when an exempt employee is absent from work for one or more full days for personal reasons, other than sickness or disability. 29 C.F.R. § 541.602(b)(1). Thus, if an employee is absent for two full days to handle personal affairs, the employee’s salaried status will not be affected if deductions are made from the salary for two full-day absences. However, if an exempt employee is absent for one and a half days for personal reasons, the employer can deduct only for the one full day absence.
  2. Deductions from pay may be made for absences of one or more full days occasioned by sickness or disability (including work-related accidents) if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by such sickness or disability. 29 C.F.R. § 541.602(b)(2). The employer is not required to pay any portion of the employee’s salary for full-day absences for which the employee receives compensation under the plan, policy or practice. Deductions for such full-day absences also may be made before the employee qualifies under the plan, and after the employee has exhausted the leave allowance provided by the benefit. For example, if an employer maintains a short-term disability insurance plan providing salary replacement for 12 weeks starting on the fourth day of absence, the employer may make deductions from pay for the three days of absence before the employee qualifies for benefits under the plan; for the 12 weeks in which the employee receives salary replacement benefits under the plan; and for absences after the employee has exhausted the 12 weeks of salary replacement benefits.
  3. Deductions may not be made for absences of an exempt employee because the employee serves on jury duty; for attendance as a witness; or temporary military leave, the employer can offset any amount received by an employee as jury fee, witness fees or military pay for a particular week against the salary due for that particular week without loss of the exemption. 29 C.F.R. § 541.602(b)(3).
  4. Deductions from pay of exempt employees may be made for penalties imposed in good faith for infractions of safety rules of major significance (those related to the prevention of serious danger in the workplace or to other employees, such as rules prohibiting smoking in explosive plants, oil refineries and coal mines). 29 C.F.R. § 541.602(b)(4).
  5. Deductions from pay of exempt employees may be made for unpaid disciplinary suspensions on one or more full days imposed in good faith for infractions of workplace conduct rules. 29 C.F.R. § 541.602(b)(5). Such suspensions may be imposed pursuant to a written policy, applicable to all employees.

“An employer is not required to pay the full salary in the initial or terminal week of employment.” 29 C.F.R. § 541.602(b)(6). An employer may pay a proportionate part of an employee’s full salary for the time actually worked in the first and last week of employment. In such weeks, the payment of an hourly or daily equivalent of the employee’s full salary for the time actually worked will meet the requirement.

“An employer is not required to pay the full salary for weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act.” 29 C.F.R. § 541.602(b)(7). Rather, when an exempt employee takes unpaid leave under the act, an employer may pay a proportionate part of the full salary for time actually worked. DOL’s regulations under the FMLA provide that deductions may be made from the salaries of exempt executive, administrative and professional employees “for any hours taken as intermittent or reduced FMLA leave within a workweek, without affecting the exempt status of the employee.” 29 C.F.R. § 825.206(a). Thus, the deduction can be hour for hour.

FMLA regulations state that this special exemption to payment on a salary basis “applies only to employees of covered employers who are eligible for FMLA leave, and to leave which qualifies as one of the four type of FMLA leave.” 29 C.F.R. § 825.206(c). Deductions may not be made from the salary of an exempt employee (1) who works for an employer with fewer than 50 employees; (2) who works at a site with fewer than 50 employees within a 75-mile radius; or (3) where the employee has not worked the required 1,250 hours necessary to qualify for FMLA leave.

When calculating the amount of allowed deduction from pay, the employer may use the hourly or daily equivalent of the employee’s full weekly salary or any other amount proportional to the time actually missed by the employee. A deduction from pay as a penalty for violations of major safety rules may be made in any amount. (29 C.F.R. § 541.602(c))

The regulations allow an employer to provide an exempt employee with additional compensation without losing the exemption or violating the salary basis requirements if the employment arrangement also includes a guarantee of at least the minimum weekly-required amount paid on a salary basis. Similarly, the exemption is not lost if an exempt employee who is guaranteed at least the minimum weekly required amount paid on a salary basis also receives additional compensation based on hours worked for work beyond the normal workweek. Such additional compensation may be paid on any basis (e.g., flat sum, bonus, straight-time hourly amount, time and one-half or any other basis), and may include paid time off. (29 C.F.R. § 541.604)

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