Massachusetts laws, and Federal laws, governing payment of wages, and overtime pay contain a number of pitfalls for unwary employers, including triple punitive damages and criminal penalties against individual corporate officers.

Employers should not automatically assume that paying an employee on a salary basis creates an exemption from overtime requirements.

Most employers understand that under the Fair Labor Standards Act of 1938 (“FLSA”) and Massachusetts law all employees must be paid overtime (time and a half) for any hours worked over forty in one week, unless the employee is exempt from such requirements under the FLSA. In order to be deemed exempt under the so-called “executive” exemptions, an employee:

1. Must be paid on a “salary” basis of at least $455 per week
2. Must be classified as an executive, administrative, professional, computer professional, or outside sales employee on the basis of the specific job duties he or she performs

Evaluating whether an employee meets the criteria for exemption based on his or her job duties is difficult enough, as it involves a fact-specific inquiry concerning the employee’s day-to-day activities. However, the first test — being paid on a salary basis — is sometimes overlooked by employers, and failure to meet this test will also result in loss of exempt status.

Payment of wages on a “salary” basis means that an employee regularly receives a predetermined amount of compensation each pay period regardless of variations in the quantity or quality of an employee’s work. If an employer fails to pay “salaried” employees properly, exempt status will be lost and the employer may be obligated to pay overtime for the entire class of employees involved.

This means, for example, that an employer may not make deductions for reasons such as lack of work. Similarly, employers may not make deductions from pay of exempt employees for partial day absences.
There are some exceptions to the general rule that employees must be paid their full salary for any week in which they perform work.

Deductions from pay of exempt employees are permissible for:

• Absences of one or more full day for personal reasons other than sickness or disability
• Absences of one or more full days due to sickness or disability if the employer has in place a policy or
• Practice of providing compensation for salary lost due to illness
• Offsetting amounts employees receive as jury or witness fees, or for military pay
• Penalties imposed in good faith for infractions of clearly articulated safety rules
• Unpaid disciplinary suspensions imposed in good faith for workplace conduct rule infractions
• Weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act

If you have any questions about this, please contact Granite Payroll.

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