Under the Fair Labor Standards Act (“FLSA”), which governs the payment of minimum wage and overtime compensation, certain employees are considered “exempt” from the FLSA's overtime and minimum wage requirements. In order to qualify for “exempt” status, an employee must not only fit within one of the recognized exempt job classifications (such as executive, professional or administrative employees), but also must be paid on a salary basis.
Under the FLSA, an employee is paid on a salary basis if the employee regularly receives each pay period a predetermined amount that is not subject to reduction because of variations in the quality or quantity of work performed. Subject to certain narrow exceptions, an exempt employee must receive his or her full salary for any week in which the employee performs any work, regardless of the number of days or hours worked.
Despite these restrictions, employers can make deductions for absences from an exempt employee's leave bank (i.e. vacation or PTO) in hourly increments, so long as the employee's salary is not reduced. If an exempt employee receives his or her full salary, deductions from the employee's leave bank, whether in full or partial day increments, do not affect exempt status. Caveat: Once an employee's leave bank is exhausted, it is NOT permissible to dock the employee's salary.