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Salary Basis Test

Federal law states that all employees are considered eligible for overtime pay unless they meet certain requirements for exemption. Continue reading to learn more about the qualifications and requirements for exemption.

What Is the Salary Basis Test?

The salary basis test is a series of requirements that exempts an employee from being eligible for overtime pay.

An employee is considered to be paid on a salary basis if the employee regularly receives a predetermined amount constituting all or part of the employee’s compensation each pay period (either weekly or on a less frequent basis). The amount paid to a salaried employee is not subject to reduction due to variations in the quality or quantity of the work performed.

What Are the Qualifications of a Salaried Employee

To qualify for exemption, the Department of Labor states that employees generally must be paid no less than $684 per week on a salary basis. These salary requirements do not apply to outside sales employees, teachers and employees practicing law or medicine. Exempt computer employees may be paid at least $684 on a salary basis or on an hourly basis at a rate no less than $27.63 an hour.

In addition to meeting the salary threshold listed above to qualify as an exempt employee (salaried employee), a salaried employee generally works in a professional role that requires a higher level of expertise and knowledge.

Executive Exemption

To qualify for the executive employee exemption, all the following tests laid out by the DOL must be met:

  • The employee must be compensated on a salary basis (as defined in the regulations) at a rate of no less than $684 per week.
  •  The employee’s primary duty must be managing the enterprise or managing a customarily recognized department or subdivision of the enterprise.
  • The employee must customarily and regularly direct the work of at least two or more full-time employees or their equivalent.
  • The employee must have the authority to hire or fire other employees, or the employee’s  suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

Administrative Exemptions

To qualify for the administrative employee exemption, all of the following tests must be met:

  • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate of no less than $684 per week.
  • The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.
  • The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

 Professional Exemption

To qualify for the learned professional employee exemption, all of the following tests must be met:

  • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate of no less than $684 per week.
  • The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment.
  • The advanced knowledge must be in a field of science or learning.
  • The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

To qualify for the creative professional employee exemption, all of the following tests must be met:

  • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate of no less than $684 per week.
  • The employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

Computer Employee Exemption

To qualify for the computer employee exemption, the following tests must be met:

  • The employee must be compensated either on a salary or fee basis (as defined in the regulations) at a rate of no less than $684 per week or, if compensated on an hourly basis, at a rate of no less than $27.63 an hour.
  • The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below.
  • The employee’s primary duty must consist of:
  1. The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications.
  2. The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
  3. A combination of the duties, the performance of which requires the same level of skills.

Outside Sales Exemption

To qualify for the outside sales employee exemption, all the following tests must be met:

  • The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer.
  • The employee must be customarily and regularly engaged away from the employer’s place or places of business.

Highly Compensated Employees

Highly compensated employees performing office or non-manual work and paid a total annual compensation of $107,432 or more (which must include at least $684 per week paid on a salary or fee basis) are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, or an administrative or professional employee identified in the standard tests for exemption.

Do Salary Employees Qualify for Overtime Pay?

It is a common myth that employees on salary cannot earn overtime pay. In terms of salary, an employee who is paid based on a salary is being paid the same salary each pay period. Salary has no bearing on whether an employee may earn overtime pay or not. Unless the job duties of the employee earn them an exemption, salaried employees who earn more than $684 per workweek can receive overtime pay.

Do Salary Employees Have To Work 40 Hours a Week?

Fair Labor Standards Act (FLSA) defines hours worked as all the time an employee must be on duty, on the employer’s premises or at any other prescribed place of work.

The FLSA also defines the overtime rule and states that covered nonexempt employees must receive overtime pay for hours worked over 40 hours per workweek. There is no federal limit on the number of hours employees 16 years or older may work in any workweek. However, state overtime pay rules may be more or less stringent than federal law. Keep in mind that the most employee-friendly rule will apply.

If an employee does qualify for an exemption, it means that the employer does not have to pay the employee overtime for hours worked over 40 per workweek.

Salary employees may work less or more than 40 hours per workweek. Salary employees receive a fixed amount of salary regardless of how many hours they work each workweek.

Though the Department of Labor (DOL) considers 40 hours of work per week to be full time, the average salaried employee does not often exceed 45-50 hours of work per week.

What Are Examples of Employees With Salary Basis Pay That Can Have Their Base Pay Docked

There are instances in which an employer may dock the pay of its employees. However, there are exceptions. For example, employers are unable to reduce a salary employee’s pay based on the quantity or the quality of the employee’s work.

Absences

Employers may reduce an employee’s pay if they are absent for a day or more due to personal reasons, such as an absence pursuant to the Family and Medical Leave Act or an absence for suspension of one or more days due to violations of workplace conduct rules.

Partial Workweek

Employers may reduce an employee’s salary for partial weeks worked during the initial or final weeks of employment. For example, if your employee resigns or starts work in the middle of a workweek, you do not have to compensate them for the entire week.

Furloughs

If an employee who is furloughed does not work at all during the workweek, as an employer you may dock the employee’s pay. FLSA states that an employee must be able and willing to work, and if the employee fails to report during a business closing lasting less than one week, the employer can dock the employee’s pay.

Questions You’ve Asked Us About the Salary Basis Test

Is there a minimum amount for salary?
Yes. Employees must generally be paid no less than $684 per week.
Can a salary employee refuse to work overtime?
Yes, a salaried employee may refuse to work overtime. However, the employee’s refusal may lead to disciplinary action up to their termination. Refer to your organization’s overtime policy and procedure. Note: under most circumstances, employers may require employees to work more than the 40 hours as defined by the DOL.
Wendy Kelly

Wendy Kelly

Wendy is a HR professional with over 10+ years experience in both health care and education. She is the owner of Kelly’s HR Services, a full service HR consulting agency. She is also SHRM and HRCI certified, and serves as a HRCI Ambassador.

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