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Compensation Requirements

Salary Basis or Fee Basis

An employee who meets the duties tests for the executive exemption must be paid on a salary basis of at least $455 per week. An employee who meets the duties tests for the administrative or professional exemption must be paid on a salary or fee basis of at least $455 per week. An employee in certain computer-related occupations who meets the duties tests may be paid either on a salary or fee basis of at least $455 per week or on an hourly basis of at least $27.63 for each hour worked.

To qualify for exemption, employees generally must meet certain tests regarding their job duties and meet certain compensation requirements. Job titles do not determine exempt status. You should also review the other sections of this Advisor for help in determining whether the employee meets the duties tests for exemption.

What is meant by salary?

What does "exclusive of board, lodging or other facilities" mean?

What is meant by fee basis?

How does one determine whether payment on a fee basis will be at least $455 per week?

Can payments computed or calculated on an hourly rate, day rate or shift rate ever qualify as a salary?

What if the payday is not weekly?

Does the exempt employee have to be paid the full salary if he or she works less than the full week?

Do certain payroll practices such as recording of hours and taking deductions from leave accounts violate the salary basis test?

Are there any exceptions to the minimum salary requirement?


What is meant by salary?

A salary is a predetermined amount of pay that constitutes all or part of the employee's compensation for the pay period. This predetermined amount is a fixed amount and may not be reduced based on the quality or quantity of the work performed. A salary is generally expressed as an amount paid per week, per month or per year.

To qualify for exemption under the Regulations, Part 541, an employee must earn the minimum required salary of $455 per week exclusive of "board, lodging or other facilities."

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What does "exclusive of board, lodging or other facilities" mean?

The phrase "exclusive of board, lodging or other facilities" means "free and clear" or independent of any claimed credit for non-cash items of value that an employer may provide to an employee. Thus, the costs incurred by an employer to provide an employee with board, lodging or other facilities may not count towards the minimum salary amount required for exemption. The term "other facilities'' refers to items similar to board and lodging, such as meals furnished at company restaurants or cafeterias or by hospitals, hotels or restaurants to their employees; meals, dormitory rooms and tuition furnished by a college to its student employees; merchandise furnished at company stores or commissaries, including articles of food, clothing and household effects; housing furnished for dwelling purposes; and transportation furnished to employees for ordinary commuting between their homes and work. Learn more about board, lodging and other facilities.

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What is meant by fee basis?

A fee basis is an agreed amount for a single job regardless of the time required to complete the job. Payments on a fee basis resemble piece work payments with the important distinction that a fee is generally paid for the kind of job that is unique rather than for a series of jobs repeated indefinitely and for which payment on an identical basis is made over and over. Payments based on the number of hours or days worked and not on the accomplishment of a given single task are not considered payments on a fee basis.

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How does one determine whether payment on a fee basis will be at least $455 per week?

To test whether a fee payment meets the minimum required amount for exemption, consider the time worked to complete the job and determine if the payment is at a rate that would yield at least $455 per week if the employee worked 40 hours. For example, an artist paid $250 to paint a portrait that took 20 hours to complete meets the minimum required amount since the rate would yield $500 if 40 hours were worked.

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Can payments computed or calculated on an hourly rate, day rate or shift rate ever qualify as a salary?

Yes, under limited circumstances. However, the employment arrangement must first include a guarantee of at least the minimum weekly required amount of at least $455 per week, paid on a salary basis, regardless of the number of hours, days or shifts worked. In addition, a reasonable relationship must exist between the guaranteed amount and the amount actually earned.

The reasonable relationship test will be met if the weekly guarantee is roughly equivalent to the employee's usual earnings at the assigned hourly, daily or shift rate for the employee's normal scheduled workweek. The reasonable relationship test only applies if the employee's pay is computed on an hourly, daily or shift basis. The test does not apply, for example, if the employee is paid only commissions with a guarantee of a minimum salary. In all cases however, the employee must receive the full amount of salary in any week he or she works, even if the number of hours (or days or shifts) worked (or the amount of commissions earned) is not enough for the employee to make the guaranteed salary.

For example, if a manager whose actual compensation is determined on a shift or hourly basis usually earns $1,200 per week, the amount guaranteed must be roughly equivalent to $1,200; the employer could not guarantee such an employee only the $455 minimum salary level required. In any week in which the manager performed any work for the employer, the manager would receive at least the guaranteed amount of pay.

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What if the payday is not weekly?

The employee must receive the full salary of at least $455 per week if paid on a weekly basis. If the employee is paid every two weeks (bi-weekly), the minimum salary required is $910.00. If the employee is paid twice a month (semi-monthly), the minimum salary required is $985.83. If the employee is paid monthly, the minimum salary required is $1,971.66.

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Does the exempt employee have to be paid the full salary if he or she works less than the full week?

Generally speaking, if the exempt employee performs any work during the workweek, he or she must be paid the full salary amount. An employer may not make deductions from an exempt employee's pay for absences caused by the employer or by the operating requirements of the business. If the exempt employee is ready, willing and able to work, deductions from the employee's pay may not be made when no work is available.

If the employee does not work a full workweek in the first or last week of employment, his or her employer may pay the proportionate part of the employee's salary. The employer is not required to pay an employee for any week in which the employee performs no work.

There are a few more exceptions to the general rule that the exempt employee must be paid his or her full salary in a week in which he or she performs any work. To learn about these exceptions, explore:

Absence under the Family and Medical Leave Act (FMLA)
Deductions
Disciplinary Deductions
Jury Duty, Military Leave and Serving as a Witness
Sick Leave and Disability Leave
Vacation and Personal Time

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Do certain payroll practices such as recording of hours and taking deductions from leave accounts violate the salary basis test?

A number of common payroll and recordkeeping practices are allowed that do not call into question whether an employee is paid on a salary basis. For example, the following practices do not violate the salary basis test:

  • Taking deductions from an exempt employee's accrued leave account to cover an absence subject to the leave policy (See also Sick Leave and Disability Leave and Vacation and Personal Time);
  • Requiring an employee to record his or her hours of work;
  • Requiring an employee to work a specified schedule; and
  • Implementing bona fide, across the board schedule changes.

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Are there any exceptions to the minimum salary requirement?

These compensation requirements do not apply to outside sales employees, teachers, lawyers or doctors. Employees in certain computer-related occupations may be paid either the minimum required salary or on an hourly basis of at least $27.63.

The minimum required salary (or fee basis) required to be paid to an employee working in American Samoa for an employer other than the Federal government is $380 per week.

An employee working in the motion picture industry who meets the duties tests for exemption as an executive, administrative or professional employee is not required to be paid on a salary basis provided that the employee is paid a base rate of at least $695 per week or a proportionate amount (based on a week of not more than six days) if the employee does not work a full workweek for any reason. A daily rate may be paid to an employee in a job category for which no weekly base rate is provided and the daily rate paid would yield at least $695 if six days were worked or to an employee in a job category with a base weekly rate of at least $695 and the daily base rate is at least one-sixth (1/6) of the weekly base rate.

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Compensation Requirements

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