Additional Compensation for Exempt Employees

Is it permissible to pay additional compensation for exempt employees without jeopardizing an employee’s exemption status?

The Fair Labor Standards Act (FLSA) allows employers to compensate exempt employees with additional compensation (beyond the employee’s regular salary) without jeopardizing the exemption. The additional compensation may be in the form of comp time, bonus, differential, time and a half or straight time pay. So the good news is that additional pay (in any form) does not affect the employee’s exempt status.

However, the same does not hold true in terms of deducting from exempt employees when they work less than standard hours. Although there are a few exceptions to this rule, employers generally may not deduct from an exempt employee’s regular salary unless the employee performs no work in the workweek. Making unlawful deductions from an exempt employee’s salary jeopardizes the overtime exemption. Therefore, such deductions may result in the employee losing the exempt status and becoming overtime eligible. The Wage and Hour Division of the US Department of Labor has provided a list of circumstances under which a deduction in increments of less than one full workweek is permitted:

• When an employee is absent from work for one or more full days for personal reasons other than sickness or disability. (For example if an exempt employee requests vacation, but does not have vacation pay available.)
• For absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness. (For example, this applies when an exempt employee needs to take a sick day, but is not yet eligible for paid sick leave or has exhausted all of his/her paid sick leave. This does not apply to absences of exempt employees due to illness that work for a company that does not provide paid sick leave.)
• To offset amounts employees receive as jury or witness fees, or for temporary military duty pay.
• For penalties imposed in good faith for infractions of safety rules of major significance.
• For unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions.
• In the employee’s initial or terminal week of employment if the employee does not work the full week. (For example, if the employee begins in the middle of the workweek, the employee’s salary may be prorated for the actual days worked in that first workweek.)
• For unpaid leave taken by the employee under the federal Family and Medical Leave Act.

In conclusion, while providing additional pay to exempt employees is permissible and does not violate the salaried basis of pay, it is important to be very careful with deductions taken from exempt employees’ pay.

GTM’s payroll experts are equipped to handle these and all types of payroll issues, so you can focus on growing your business. For more information, contact us at (518) 373-4111.