Published Date: 02/17/2014
By George Ports
According to the US Department of Labor’s Wage & Hour Division, cash shortage deductions from commission payments made to salaried exempt employees would not affect their exempt status under section 13(a)(1) of the Fair Labor Standards Act (FLSA) as long as the affected employee meets both the duty and the guaranteed salary level tests required.
An employee will be considered to satisfy the salary level test if the employee is paid on a salary basis at a rate of not less than $455.00 per week. The salary basis test is met if the employee regularly receives each pay period “a predetermined amount constituting all or 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.” An exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked. [Note: There are limited exceptions regarding deductions from exempt pay. For more information, go to http://j.mp/ex-su.]
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 guarantee of at least the minimum weekly-required amount paid on a salary basis. Thus, for example, an exempt employee guaranteed at least $455 each week paid on a salary basis may also receive additional compensation of a one percent commission on sales.
An exempt employee may receive a percentage of the sales or profits of the employer if the employment arrangement includes a guarantee of at least $455 each week paid on a salary basis. Similarly, the exemption is not lost if an exempt employee who is guaranteed at least $455 each week paid on a salary basis also receives additional compensation based on hours worked for work beyond the normal workweek. Such additional compensation may be 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. In other words, additional compensation paid on any basis besides the guaranteed salary is not inconsistent with the salary basis of payment.
Wage and hour regulations require only that exempt employees be paid a guaranteed salary of at least $455 per week, and any additional compensation above this salary amount is generally something that may be agreed upon between the employer and the employee. The prohibition against improper deductions from the guaranteed salary does not extend to any such additional compensation provided to exempt employees.
Cash shortage deductions, therefore may be made from a salaried exempt employee’s commission payments without affecting the employee’s exempt status as long as the commission payments are bona fide and are not paid to facilitate otherwise prohibited deductions from the guaranteed salary.
If you have wage and hour regulation questions, please contact a member of CAI's Advice & Resolution Team at 919‑878‑9222 or 336‑668‑7746.