The FLSA requirement that employees classified as exempt must receive a fixed, predetermined salary that is not reduced based on the quality or quantity of work performed in any given week.
Why Salary Basis Test matters for employers
The salary basis test is one of three requirements (along with the salary level test and duties test) that must all be satisfied for an employee to be classified as exempt from FLSA overtime. To pass the salary basis test, the employee must receive a guaranteed minimum salary in any week they perform work, regardless of hours worked or quality of output. Permissible deductions from salary are limited to specific situations: full-day absences for personal reasons, first or last weeks of employment, and FMLA leave.
Improper deductions from salary can destroy the exemption, converting the employee to non-exempt status for the entire period during which deductions were made. Employers with a clearly communicated salary deduction policy who reimburse improper deductions may qualify for a safe harbor under the FLSA regulations.
How BEG handles Salary Basis Test for clients
BEG Managed Payroll handles Salary Basis Test as part of a fully managed payroll service at $25-$45 per employee per month. Clients do not need to track compliance rules, filing deadlines, or calculation methods related to Salary Basis Test on their own. Everything is included. Learn about BEG Managed Payroll.
Frequently asked questions
Do employers have to manage Salary Basis Test themselves?
No. A managed payroll provider handles Salary Basis Test as part of full-service payroll. BEG manages this for clients at $25-$45 PEPM with no system migration required.
What happens if Salary Basis Test is handled incorrectly?
Errors related to Salary Basis Test can trigger IRS penalties, state agency assessments, or employee disputes. Catching and correcting errors before filing is far less costly than after-the-fact corrections.
How does BEG handle Salary Basis Test for managed payroll clients?
BEG tracks, calculates, and remits everything related to Salary Basis Test as part of fully managed payroll. Clients do not need to monitor compliance -- that is included in the service at $25-$45 PEPM.
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About the author
Anthony Moretti is VP of Sales at Business Executive Group, where he builds BEG's managed payroll and HR service verticals for employers across Dallas-Fort Worth and nationwide. He writes the BEG Payroll Glossary to give employers plain-English answers on payroll and compliance.
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