Pay Deduction for Exempt
Crout
1,238 Posts
I'm glad to get this question in before THE BIG CHANGE (bum, bum, baaaaa) on July 19. We currently require an entire class of exempt employees to carry a pager on a rotating, weekly basis for which we give bonus pay. I have an employee who routinely does not respond when she is carrying the pager, and her supervisor would like to start deducting her bonus pay for those instances. I have advised the supervisor that it's not a good idea to do this for the reasons we all know so well....it could jeopardize the exempt status of that EE and all EE's in that class, and the best way to proceed would be to utilize the disciplinary process. However, I am curious. Would the fact that we're talking about deducting bonus pay and bonus pay only make a difference here? Thank you.
Comments
The way I read the DOL Opnions of 29CFR541118(b), as well as the provision itself, is that as long as you don't dock the base salary, the BONUS that you pay for any extra effort required by carrying the pager can be curtailed appropriately.
Since you are not required to pay for extra effort ("overtime"), you can set just about whatever requirements you want for an emplyee to get the bonus and determine the way it is paid -- including for each respnded page, or each hour of addtional effort not intended to be covered by the base salary.
DOL's concern is that any extra pay for the extra effort not be used as a ruse to get around the prohibitions against improper docking of the base salary.
You should consult with legal counsel. Perhpas your company may want to put an inquiry into DOL and ask for an Opnion on whether or not under current 541.118(b) you can reduce the bonus or even pay the exmept emplyee on a per page response or even hourly for the extra effort.
However, if the page is simply to deal with work for which the base salary is suppose to pay, then you couldn't dock if she didn't work part of a day. However, the question then becomes why wold you even give a bonus to an employee for carrying a pager that is REQUIRED to do the work covered under the base salary?
- The bonus is paid for carrying the beeper on off duty hours to deal with clients who may be in crisis. So, yes, we are paying the bonus for extra work that is not required under the base salary.
Thanks for your input, Hatchet.
If you are a member of SHRM, you can take a look at some of the Opinion Letters at its website.
I've just included some wording from a couple of the Opnion Letters:
From 4-6-95:
"In reference to your letter of February 9, 1995, it is our understanding that you asked whether any opinions had been rendered, and did not specifically request a new response to your question. Nevertheless, as discussed in section 541.118(b) of Regulations, Part 541 (copy enclosed), additional compensation besides the required minimum weekly salary guarantee may be paid to exempt employees for hours worked beyond their standard workweek without affecting the salary basis of pay. Thus, extra compensation may be paid for overtime to an exempt employee on any basis. The overtime payment need not be at time and one-half, but may be at straight time, or at one half time, or flat sum, or on any other basis."
From 3-17-97:
"...The Department has consistently held that, standing alone, extra hourly compensation for working more than 40 hours in a week does not defeat an otherwise applicable FLSA exemption for a professional employee, provided the employee meets all of the regulatory tests relating to duties, responsibilities, and compensation including the requirement for payment of a bona fide guaranteed salary as defined in the Department's regulations on "salary basis" of pay in 29 CFR § 541.118.
The Federal regulations explain that a salary may consist of a predetermined amount constituting all or part of the employee's compensation. In other words, under U.S. Department of Labor regulations, additional compensation besides the guaranteed salary, such as discussed in your letter, is not inconsistent with the salary basis of payment and does not invalidate an otherwise applicable exemption (29 CFR § 541.118(b)). The Department considers several factors when determining if employees in fact are paid a guaranteed salary or on an hourly basis, including whether the employer reduces employees' pay by the hour for each hour absent from work and whether additional compensation is paid on an hourly basis, among others. Where all the pertinent facts indicate that an employee is paid on an hourly basis rather than on a guaranteed salary basis, the exemption does not apply."
From 4-1-99:
"It has been our long-standing position that compensation in addition to an employee's guaranteed salary is not inconsistent with the salary basis of payment and thus does not, standing alone, defeat an otherwise applicable exemption for an employee paid a bona fide salary. Some courts have evaluated employers' pay plans and concluded that employees had not been paid on a salary basis at all, despite the employer's claim that they were salaried employees who simply received additional compensation. This has occurred, for example, where's the employees' compensation was computed based upon their actual hours of work, their typical weekly earnings far exceeded their minimum guaranteed salary, and employees were not paid for partial days off. Thus, the salary was 'nothing more than an illusion' and the employees in fact were compensated on an 'hourly, and not salary basis.' Brock v. The Claridge Hotel and Casino, 846 F.2d 180, 183 (3rd Cir. ), cert. denied, 488 U. S. 925 (1988) . See also Klein v. Rush Presbyterian St. Luke's Medical Center, 990 F.2d 279 (7 th Cir. 1993); Assn of Gov't Employees v. Department of Corrections, 992 F.2d 82, 84 (6 Cir. 1993). Where the facts of a particular case demonstrate that employees in reality have not been paid on a salary basis, we believe that those decisions are correct. Where an employee is paid on a salary basis, however, it continues to be our opinion that extra compensation by the hour for hours worked in excess of 40 in a workweek, paid in addition to an exempt employee's guaranteed salary, would not defeat the exempt status of an otherwise exempt employee."
Even the new Fair Pay Regulation -- 541.604(a) --that replaces 541.118(b) continues on with the basic concept of .118(b):
"An employer may provide an exempt employee with additional compensation without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guaranteeof at least the minimum weeklyrequired amount paid on a salary basis. Thus, for example, an exempt employee guaranteed at least $455 each week on a salary basis may also receive additional compensation of a one percent commission on sales. An exempt employee also may receive percentage of the sales or profits of employer if the employment arrangement also includes a guarantee of at least $455 each week paid on salary basis. Similarly, the exemption is not lost if an exempt employee who guaranteed at least $455 each week on a salary basis also receives additional compensation based on hours worked for work beyond the normal workweek. Such additional compensation may paid on any basis (e.g., flat sum, bonus payment, straight-time hourly amount,time and one-half or any other basis), and may include paid time off."
As I said before, especially since I am not an attorney, consult with your legal advisor and double check your State's provisions on extra compensation to salaried exempts.