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Salary adjustments
  • An employee must receive notice from an employer before agreeing to do any work under a new adjusted salary.
  • Good-faith compliance with the salary basis rule can be demonstrated by an employer in several ways.

Although salary deductions are restricted, employers can make reductions in salary, assuming the employee is given notice before working any hours at the new salary. The Field Operations Handbook from the U.S. Department of Labor (DOL) includes the following on this:

“A prospective reduction in the predetermined salary amount to not less than the applicable minimum salary due to a reduction in the employee’s normal scheduled workweek is permissible and will not defeat the exemption, provided that the reduction in salary is a bona fide reduction that is not designed to circumvent the salary basis requirement.”

For example, if an employee will be moved from full-time (five days per week) to part-time (four days per week), the employer could reduce the salary by 20 percent to account for reduced expectations. This assumes the new salary will still meet the weekly guaranteed minimum requirement.

Similarly, an employer might expect a reduction in work for a period of several months and might reduce everyone’s working time, along with a commensurate reduction in salaries. This is acceptable, but such changes should be in place for a substantial period of time (a minimum of eight weeks is a best practice).

However, unpaid time off cannot be mandated for increments of less than a full workweek where the time off is imposed “after the fact” (rather than prospectively). This would be an improper deduction and would result in a violation of the salary basis rule. For example, employers cannot establish a different schedule of working hours at the start of each pay period and designate a “salary” for that pay period.

Although prospective salary adjustments are allowed, making regular changes should be avoided. A few changes per year should not create problems, but adjustments every few weeks (or every few pay periods) may imply that the employee is paid by the amount of work performed rather than on a salary basis.

Safe harbor

The regulation at 29 CFR 541.603(d) provides a safe harbor for employers that have a clearly communicated policy prohibiting improper deductions. A clearly communicated policy includes a mechanism for employees to file complaints, reimburses employees for any improper deductions, and makes a good-faith commitment to comply with the salary basis rule in the future. With such a policy, an employer will not lose the exemption for any employees except for willfully violating the policy by continuing to make improper deductions after receiving employee complaints.

These policy violations will cause the exemption to be lost during the time period in which improper deductions were made for employees in the same job classification working for the same managers responsible for the improper deductions.

Although a written policy is the best evidence of the employer’s good-faith efforts to comply with the salary basis rule, a written policy is not essential. However, the policy must have been clearly communicated to employees prior to the impermissible deduction. The “clearly communicated” standard can be met, for example, by providing a copy of the policy to employees when they are hired, publishing it in an employee handbook, or distributing it over the employer’s intranet.

The safe harbor provision is available regardless of the reason for the improper deduction, whether made for lack of work or other reasons.

For example, where an employer has a clearly communicated policy prohibiting improper deductions, but a manager engages in an actual practice (neither isolated nor inadvertent) of making improper deductions, regardless of the reasons for deductions, the exemption would not be lost for any employees. This is only if, after receiving and investigating an employee complaint, the employer reimburses employees for improper deductions and makes a good-faith commitment to comply in the future.

There are several ways in which an employer could show its good-faith commitment to comply in the future including, but not limited to:

  • Adopting or republishing the policy prohibiting improper pay deductions,
  • Posting a notice of the commitment on a bulletin board or intranet,
  • Providing training to managers and supervisors on the policy,
  • Reprimanding or training the manager who took the improper deductions, or
  • Establishing a telephone number for employees to file complaints concerning improper deductions.

An employer should be allowed a reasonable amount of time to look into and correct a matter after receiving an employee complaint of improper deductions. While the amount of time it will take an employer to complete an investigation will depend upon the circumstances, an employer should begin such an investigation promptly. However, the fact that the employer receives other complaints before timely completion of the investigation should not, by itself, defeat the safe harbor.