Category: Employment Law

Salary Basis

Salary Basis for FLSA Overtime Exemptions

Several common FLSA overtime exemptions require that employees be paid on a salary basis. A salary usually refers to a fixed amount of compensation that an employee receives regularly. But, for FLSA purposes, paying employees on a salary basis is more complicated than just that.

Minimum Wage & Overtime Exemptions

The FLSA is a federal law that covers most employers in the United States. It generally requires them to pay employees a minimum wage and overtime for working over 40 hours in a week. The law allows various exemptions from these standard requirements. The most widely applicable are often referred to as “white collar exemptions”. (They primarily apply to employees who perform little manual labor.) These include the executive, administrative, professional, and outside sales exemptions.

Employers do not have to pay overtime to employees who qualify for these exemptions. (They are also technically exempt from minimum wage, though their compensation typically exceeds that level anyway.)

The executive, administrative, and professional exemptions require that the employee is paid on a salary or fee basis of at least $455 per week. There is no salary requirement for the outside sales exemption.

Many states have similar minimum wage and overtime laws and exemptions. Some of these have higher salary requirements for exemption. Employers usually must satisfy both state and federal overtime requirements.

Salary Basis Requirement

“Salary Basis” compensation means the employee receives a predetermined amount of pay each pay period on a weekly or less frequent basis. That part is relatively straightforward.

The complexity lies in the further detail that the predetermined amount cannot be reduced based on the quality or quantity of the employee’s work. Improper salary reductions can destroy an exemption. That can open up the employer to substantial liability for unpaid overtime.

Permissible Deductions

Generally, an exempt employee must receive their full salary for any week in which they work at all. Conversely, if an exempt employee does not work at all in a week, then no payment is required under the FLSA.

There are also a few limited situations where missing time during a week can warrant a lawful pay reduction without jeopardizing the salary basis requirement:

1. First and Last Weeks of Employment

An exempt employee who starts their job after the first day/hour of a workweek can receive a pro-rated salary payment for that week.

The same applies to an employee who ends employment before the last day/hour of a workweek.

2. Absence for Personal Reasons Other than Sickness or Disability

If an exempt employee voluntarily takes one or more full days off for personal reasons, then their employer could dock their pay for the day(s) without undermining their FLSA exemption. No pay reduction is permissible, however, for partial day personal leave.

3. Absence for Sickness or Disability

Employers may also reduce an exempt employee’s pay for full-day absences due to sickness or disability. But, the pay reduction must be consistent with a bona fide plan, policy, or practice of providing compensation for salary lost due to illness.

If the employer does not have a sick leave policy, then making pay deductions for sickness or disability, even in full-day increments, will interfere with the salary basis component of applicable FLSA exemptions.

However, when an exempt employee is eligible for paid sick leave but exhausts available leave time, then their employer may reduce their salary for full-day absences due to additional sick days.

Employers may likewise pay only a pro-rated salary in weeks where an employee receives workers’ compensation or disability insurance benefits for days they are not working.

4. Unpaid FMLA Leave

When employees are eligible to take time off under the Family and Medical Leave Act (FMLA), the law only guarantees unpaid leave. Accordingly, employers may reduce salaried exempt employees’ pay for time off under the FMLA.

FMLA leave can sometimes be taken for only part of a workday. In those cases, employers could make pay deductions in less than full-day increments.

5. Offsetting Jury or Witness Fees or Military Pay

Employees who are off of work to serve on a jury, testify as a witness, or serve in the military might receive alternative compensation to do so. In these cases, the employer does not have to maintain the full salary over the periods of these absences, even if only for part of a day.

6. Penalties for Infractions of Safety Rules of Major Significance

Employers may reduce salaried employees’ pay for certain safety violations. According to FLSA regulations:

“Safety rules of major significance include those relating 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.”

7. Disciplinary Suspensions for Workplace Conduct Rule Infractions

If an employer suspends an exempt employee for violating a written policy that applies to all employees, then they may deduct pay for full days that the employee does not work. This allows the employer to implement an unpaid suspension.

Consequences of Improper Salary Deductions

An employer that makes impermissible deductions from an exempt employee’s salary may lose the exemption not only for that employee, but perhaps for all employees in the same job classification.

However, isolated or inadvertent deductions will not destroy the exemptions as long as the employer reimburses the employees for all improper deductions.

There is a “safe harbor” protection available to employers that:

(1) have a clearly communicated policy prohibiting improper deductions and including a complaint mechanism;

(2) reimburse employees for any improper deductions; and

(3) make a good faith commitment to comply in the future,

An employer that satisfies the safe harbor parameters will not lose exemptions improper deductions unless it willfully continues to make improper deductions after receiving employee complaints.

Review Your Pay Practices

Employers who are uncertain about their full compliance with these rules should promptly review their exempt employee pay practices. The penalties for losing exemptions can be costly if employees subsequently seek overtime compensation.

Keep in mind that state wage and hour laws might have different exemptions or construe them differently. Employers covered by both state and federal overtime laws must comply with both. Many states apply similar salary basis concepts, but some situations might necessitate alternative or additional analysis.

NY Predictive Scheduling Webinar

NY Predictive Scheduling (Webinar Recap)

On February 26, 2019, I presented a complimentary webinar called “NY Predictive Scheduling Regulations.” For those who couldn’t attend the live webinar, I’m happy to make it available for you to watch at your convenience.

Update: Soon after I presented this webinar and posted this blog entry, the New York State Department of Labor indicated that it is no longer planning to implement these regulations. However, a DOL spokesperson indicated they would continue to consider alternative approaches to the issue, including possible legislative action.

In the webinar, I discuss:

  • Call-in Pay
  • On-Call Pay
  • Scheduling Requirements
  • Gaps & Exceptions

These proposed regulations from the Department of Labor would apply statewide. As proposed, they would cover all industries and employers except government employees and those in the hospitality (hotel/restaurant) industry, building services industry, and farming. However, it is likely that additional regulations will expand similar requirements in at least the hospitality industry in the future.

Don’t have time to watch the whole webinar right now? Click here to download the slides from the webinar.

Why You Should Watch “NY Predictive Scheduling Regulations”

The NYS Department of Labor has proposed these rules twice: First in November 2017, then again, with limited revisions, in December 2018. The public comment period ended in January 2019. At this time, we anticipate that the DOL will go forward with implementing these rules (perhaps with additional edits) without much additional delay.

These rules are much more complex than the existing requirements in this area. In essence, they replace one relatively minor regulation with meaningful new provisions that might require employers to pay their employees additional compensation for:

  • Reporting to work for less than 4 hours
  • Requiring employees to work unscheduled shifts
  • Cancelling scheduled shifts with less than 14-days’ notice
  • Being on-call
  • Requiring employees to call-in to confirm their schedule

At the time of this webinar, these rules were not yet in effect. However, they could be soon, with a relatively short time for employers to come into compliance. Make sure you know what’s probably coming to maximize your opportunity to respond.

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Hair Discrimination

New York City Styles Hair Discrimination

On February 18, 2019, the New York City Commission on Human Rights released enforcement guidance about discrimination based on hair. “Hair discrimination” is not per se illegal under either New York State or New York City law. However, this guidance notes that race discrimination, especially anti-black discrimination, takes many explicit and implicit forms. Thus, the New York City Commission’s guidance explains that discriminating against someone because of their hair can constitute employment discrimination.

This appears to be the first legal guidance of this nature in the United States. It focuses on “anti-Black” hair discrimination.

What Is “Hair Discrimination”?

The new guidance proclaims that:

“The New York City Human Rights Law (“NYCHRL”) protects the rights of New Yorkers to maintain natural hair or hairstyles that are closely associated with their racial, ethnic, or cultural identities.”

The guidance contains more detail, noting “this includes the right to maintain natural hair, treated or untreated hairstyles such as locs, cornrows, twists, braids, Bantu knots, fades, Afros, and/or the right to keep hair in an uncut or untrimmed state.”

Source of Legal Protections

The New York City Human Rights Law does not specifically prohibit hair discrimination. It does broadly prohibit race discrimination in employment and other areas.

This guidance from the New York City Commission on Human Rights does not modify the law itself. Instead, it addresses how discrimination based on hairstyle implicates existing protections. In addition to race, the guidance mentions prohibitions against religion, disability, age, and gender-based discrimination. If an employer uses hair as a proxy for any of these protected characteristics, their actions might violate the NYCHRL. But the guidance focuses on race, and specifically Anti-Black, discrimination.

The NYCHRL applies to employers in New York City with at least 4 employees.

The separate New York State Human Rights Law covers employers throughout the entire State. Though similar legal arguments might be available under the State law, this guidance only pertains directly to the NYC law.

Black Hairstyles as Protected Characteristics

Again, the NYC Commission on Human Rights hasn’t actually changed the law itself. An employee who tries to file a complaint based on their hair will still need to check a different box, such as “race,” as the basis of the discrimination. Nonetheless, this enforcement guidance does go so far as to assert that “Black hairstyles are protected racial characteristics under the NYCHRL because they are an inherent part of Black identity.”

The full scope of this newly identified protection remains uncertain. Employers defending against claims based on hair discrimination will likely challenge aspects of the guidance in the future.

According to the guidance: “There is a strong, commonly-known racial association between Black people and hair styled into twists, braids, cornrows, Afros, Bantu knots, fades, and/or locs, and employers are assumed to know of this association.”

Does this mean that employment decisions based on these hairstyles are automatically discriminatory?

Impact on Employee Grooming Policies

There’s little doubt from reading this new guidance that the NYC Commission on Human Rights takes a very broad view on hair discrimination prohibitions. Despite allowing that an employer might have legitimate business reasons for requiring employees to have neatly groomed hair, virtually any restriction that disadvantages anyone with a hairstyle “associated with Black communities” will be legally suspect. To this end, the guidance observes, “an employee’s hair texture or hairstyle generally has no bearing on their ability to perform the essential functions of a job.”

[Click here to review the full guidance document.]

What Does This Mean for New York Employers?

As the New York City Commission on Human Rights concludes in this guidance, employers within NYC should promptly review their grooming and appearance policies. The Commission further encourages employers to “ensure [these policies] are inclusive of the racial, ethnic, and cultural identities and practices associated with Black and historically marginalized communities.”

Outside of New York City, employers throughout the State should still heed this guidance as a warning. The New York State Division of Human Rights has not issued related guidance on this topic. But it may proceed with similar enforcement sentiments. The state employment discrimination laws protect the same underlying characteristics (including race) that the NYC Commission relies on to ban hair discrimination.

 

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