Under FLSA an employee will be considered to be paid on a “salary basis” and thus exempt for the purposes of overtime compensation, if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all of part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. 29 C.F.R. section 541.602(b)(1)(2004). Employees must also be paid a specified minimum salary in order to qualify as exempt.
The effect and the reason behind those provisions is to prevent employers from docking the pay of an employee for an absence of less than a day (partial day absence). In other words, the employer should only deduct pay for one day absences or longer. Thus, if an exempt employee takes a few hours off, that should not be deducted from pay. If an employee takes one day and a half off, the employer, with a small number of exceptions, can only deduct one day from that pay period. If the employer makes partial day deductions, then the employees subject to those deductions do not meet the salary basis test, and are non-exempt for the purposes of overtime pay.
Thus, an employer should be very careful with partial day deductions against exempt employees’ pay, as classifying employees as “salaried exempt” while docking their pay for partial day absences will likely subject an employer to liability for failure to pay overtime compensation for at least the entire time that the policy of partial day deductions has been in place.