The more straightforward requirement in classifying an employee as exempt from overtime under the FLSA’s white collar exemptions is payment – on a “salary basis” – of a salary no less than $455/week (some states require a higher salary basis).  Employers must ensure this amount is paid to the employee for each and every workweek in which work is performed, subject only to the exceptions to this requirement set forth in DOL regulations, 29 C.F.R. §§ 541.602-605 (and, as applicable, state law).  Wage-and-hour plaintiffs sometimes challenge the salary basis nature of their compensation based on alleged actual or even theoretical deductions from the salary payment, as exemplified by a new decision from the Court of Appeals for the Tenth Circuit, McBride v. Peak Wellness Ctr., Inc., 2012 U.S. App. LEXIS 16335 (10th Cir. Aug. 6, 2012).

In McBride, an exempt business manager for defendant, a non-profit drug rehabilitation center, alleged that, because defendant had deducted from her paid time off (PTO) bank when she worked less than a full day, she did not receive her full salary on a salary basis, thereby destroying exempt status.  Consistent with the regulation at 29 C.F.R. § 541.602(b)(2), the court rejected this argument observing, that “[Plaintiff] does not claim Peak made any deductions to her salary. Thus, even taking McBride's allegations as true, Peak did not violate the FLSA's prohibition on pay deductions for exempt employees.” The United States Department of Labor has expressed the same view via opinion letters. 

As employers continue to push for productivity and efficiency, business leaders and cost managers may propose practices that could impact the application of the salary basis standard. Counsel, Human Resources and other risk managers must take measures to ensure compliance with the salary basis requirements set forth in the regulations and, as applicable, state law.