"Salary Basis Test"

What is the Salary Basis Test?

The Salary Basis Test is a legal standard used to classify employees as exempt or non-exempt from overtime pay under employment laws such as the Fair Labor Standards Act (FLSA). It evaluates whether an employee receives a fixed salary regardless of work hours.

How Does the Salary Basis Test Work?

An employee passes the Salary Basis Test if they regularly receive a predetermined amount of pay each pay period, which is not subject to reduction based on the quality or quantity of work. This consistency in pay is essential for exempt status.

Why is the Salary Basis Test Important?

• Legal Compliance: Ensures companies comply with wage and hour laws, avoiding penalties.
• Correct Classification: Helps differentiate between exempt and non-exempt employees for overtime eligibility.
• Payroll Accuracy: Ensures consistency in salary disbursement and record-keeping.

Criteria for Salary Basis Test

• Employee must be paid a fixed amount not tied to hours worked.
• Salary must meet minimum thresholds defined by law.
• No deductions for partial-day absences (with limited exceptions).

How to Ensure Compliance?

Employers should routinely review compensation structures and job duties, use payroll software to ensure consistent salary payments, and stay updated with local labor regulations related to exemption criteria.