Salaried Exempt Employees - The “White Collar” Exemptions

Wage and hour law generally requires employers to pay minimum wage and overtime to their employees and comply with basic working conditions requirements like rest and meal periods.

Among the more commonly invoked exemptions to these requirements are those provided for so-called “white collar” employees or “salaried exempt” employees. Under wage and hour law, these exemptions are also referred to as the “Executive,” “Administrative” and “Professional” exemptions. Minimum wage, overtime and most working conditions requirements do not apply to these “white collar” workers when they qualify for the exemption.¹ ORS 653.020(3); 29 U.S.C. § 213(a)(1)

Misapplication of the exemption creates potential liability for overtime claims and penalties for working conditions violations. Typically, employers assume that giving an employee a management title or paying that individual a salary automatically triggers an exemption. In reality, wage and hour regulations provide specific criteria for the duties of each of the “white collar” exemptions and require that executive, administrative or professional employees also be paid on a salary basis.

[1] The notable exceptions here are the accommodations for employees with a need to express milk in the workplace.

Requirements

Salaried exempt employees working in the private sector must meet one of the three following duties tests

Executive (supervisory) duties test

Primary duty consists of the management of the enterprise in which the employee is employed (or of a customarily recognized department or subdivision of the enterprise). This generally means more that 50 percent of the worktime, however, other factors might support exempt status if less than 50 percent of worktime is spent in management. Other factors indicating management as a primary duty could include that the employee is paid a significantly higher salary than is paid to nonexempt staff, the employee makes frequent management decisions and the employee is free from direct supervision;
Supervise two or more full-time employees (or the equivalent of two or more);
Have hiring or firing authority or, if not full authority, recommendations are given particular weight; and
Customarily and regularly exercise authority to make decisions of significance.

Administrative employee duties test

The second category of “white collar” exemptions is for a group of management employees who do not necessarily supervise other employees, but who perform responsible management duties within the organization: administrative personnel. As with the executive category, administrative personnel must satisfy both the duties test and the salary basis test to qualify for exemption.

Primary duty consists of either:

The performance of office or non-manual work directly related to management policies or general business operations of the employee’s employer or the employer’s customers. The work must be distinguished from production or sales work and is limited to duties directly related to the running of a business and not merely carrying out day to day affairs; or
The performance of functions in the administration of a school system, or educational establishment or institution, or of a department or subdivision thereof, in work directly related to the academic instruction or training;

Customarily and regularly exercise authority to make decisions of significance; and
Perform work as such as an executive's assistant who has management duties; a staff employee, such as an advisory specialist or department head; or as a special assignment employee such as a human resources manager.

Professional employee duties test

The third category of salaried exempt employees is actually comprised of three separate sub-categories:

Learned professionals;
Creative professionals; and
Teachers or tutors.

Note that employers have several options regarding the classification of highly skilled computer professionals. See our factsheet on computer professionals for details.

As with executive and administrative personnel, exempt professionals must satisfy both a series of duties tests and a salary basis test to qualify for this exemption.

Primary duty:

For the learned professional - Work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study, as distinguished from a general academic education and from an apprenticeship, and from training in the performance of routine mental, manual, or physical processes; or
For the creative professional – Work that is original and creative in character in a recognized field of artistic endeavor, the result of which depends primarily on the invention, imagination, or talent of the employee; or
For teachers or tutors - Teaching, tutoring, instructing, or lecturing in the activity of imparting knowledge and who is employed and engaged in this activity as a teacher in the school system or educational establishment or institution by which the employee is employed;

Whose work requires the consistent exercise of discretion and judgment in its performance; and
Whose work is predominantly intellectual and varied in character and is of such character that the output produced or the result accomplished cannot be standardized in relation to a given period of time.

Oregon’s “white collar” exemptions were patterned largely after federal law, however, when state and federal regulations conflict, employers subject to both laws must apply the standard that is most beneficial to the employee.

Salary basis

In addition to meeting at least one of the duties tests, exempt “white collar” employees typically must be paid a “salary” on a “salary basis.”

A salary is an agreed upon amount representing compensation for a period not less than a week, exclusive of board, lodging, or other facilities. Almost all Oregon employers are subject to the Fair Labor Standards Act (FLSA), and the minimum salary to qualify for exemption under that law is $684 per week or $35,568 annually (allowing up to 10% of the salary basis threshold to be met with nondiscretionary bonuses/incentives, including commissions, paid at least annually). Visit the US DOL website on this topic. This amount is up from $455 per week ($23,660 annually) beginning January 1, 2020. Oregon law requires a weekly salary equivalent to a monthly salary calculated by multiplying the applicable regional minimum wage by 2,080 hours and dividing that amount by 12 months. ORS 653.010(9); OAR 839-020-0004(29).

Payment on a “salary basis” means that the agreed upon amount is generally not subject to reduction based on the quality or quantity of work performed. The general rule requires that the employee receive the full salary for any week in which work is performed without regard to the number of hours or days worked. OAR 839-020-0004(30). That said, the salary of an exempt “white collar” employee may be reduced under the following specific circumstances without jeopardizing the exemption. 29 CFR §541.602.

The salary may be prorated (reduced) if an exempt employee is absent for one or more full days for personal reasons, other than sickness or disability.

The salary may also be reduced for absences of one or more full days due to sickness or disability provided the reduction is made according to the employer’s plan, policy or practice of providing paid sick or disability leave. In addition, if an employer has a paid sick leave plan and the employee has exhausted all available paid leave under that plan, then the salary may be reduced for full-day absences due to sickness or disability.
If the employee performs any work during the workweek when serving on jury duty, serving in the military or when attending a proceeding as a witness, the exempt employee’s weekly salary must be paid. However, the employer may offset any amounts received by the employee as jury or witness fees or military pay for that week.
Reductions to an exempt employee’s salary may not be made as a disciplinary measure unless the penalty is imposed for violations of safety rules of major significance such as smoking in an explosive plant or oil refinery. However, if the employee is suspended for a full workweek, and no work is performed during that week, no salary is required to be paid.
Reductions for suspensions for workplace infractions or workplace conduct (other than major safety violations) may also be made provided: (1) the reductions are made in full-day increments; and (2) the unpaid suspension is imposed pursuant to written policy applicable to all employees (not just exempt employees).
An employer is not required to pay the full salary in the initial and terminal weeks of employment if the employee does not work the entire week.
In private sector employment, the exempt employee’s salary may not be reduced when an employee is absent for part of a day, unless the absence qualifies as leave taken under the federal Family and Medical Leave Act (FMLA). (Special rules apply to government agencies.) 29 C.F.R. § 541.602.

Note: If the FMLA partial day absence also qualifies for protected leave under the Oregon Family Leave Act (OFLA), the employer may make a partial day salary reduction. However, if the absence only qualifies the employee for OFLA leave but not for FMLA leave (e.g., sick child leave, or leave to care for an employee’s grandparent, grandchild, or same-sex domestic partner with a serious health condition, or the employee is OFLA eligible but not FMLA eligible), the employer may not make the partial-day salary reduction without jeopardizing the exemption. OAR 839-009-0240(14).

Fee basis alternative

Federal law permits employers of exempt administrative and professional employees, but not executive employees, to pay such employees on a fee basis rather than on a salary basis without jeopardizing their exemption. 29 C.F.R. § 541.605. Payment on a fee basis must be at a rate that would amount to at least the minimum required salary per week if the employee were to work 40 hours. Thus, an artist paid $400 for a picture that took 20 hours to complete meets the minimum salary requirement for exemption since earnings at this rate would yield $800 for a full 40 hours.

Oregon law also permits the payment on a fee basis without jeopardizing the salary basis of otherwise exempt employees, provided the fees are paid each pay period and are not less than the equivalent of the applicable state minimum wage. OAR 839-020-0004(30)(b).

For workers

Exempt employee administration

Are employers required to track hours worked by exempt employees?

No, if an employee is truly exempt as a “white collar” employee, there is no affirmative requirement to track hours worked though employers may elect to track hours worked for business purposes like job costing, benefit accruals or computing an employee’s entitlement to intermittent family leave under OFLA or FMLA. Employers may also require exempt employees to be present during specified hours.

Are rest and meal periods required for exempt employees?

Generally, no. The rest and meal period requirements of the Oregon administrative rule arise out of Oregon’s minimum wage law (ORS 653.010 to 653.261), and employees who are exempt from the minimum wage law are also exempt from rest and meal period requirements. That said, administrative, executive or professional employees are entitled reasonable rest periods to express milk, unless to do so would cause an undue hardship. ORS 653.077.

Is it okay to pay extra amounts, in addition to the salary, to exempt employees?

Yes, provided the employee receives the required minimum amount on a salary basis, employers are free to provide additional compensation on another rate or basis.

Salary reductions

I have an exempt employee who has requested to work part time at only 20 hours each week. The employee is currently paid $800 per week. May I reduce the salary by 50 percent since the employee will be working half time?

No, not if you intend to preserve the employee’s exempt status. In order to preserve that status under federal law, the employee must receive the full minimum required salary for each week. Federal regulations allow for equivalent salaries which correspond to periods longer than one week, (e.g., twice the minimum salary for a biweekly pay period) but specify that the shortest period of payment that will meet this compensation requirement is one week. 29 C.F.R. § 541.600(b). You will have to make a business decision as to whether it is worth maintaining the exemption for an employee who will only be working half time.

Is it permissible to require exempt employees to use accrued vacation or sick leave when they are absent?

Yes, deductions from leave banks for absences are permitted as long as the employee receives the appropriate payment in cash or salary. Such deductions from leave banks do not affect the exempt employee’s status. However, it is essential that the exempt employee’s salary not be “subject to deductions” for partial day absences (except as noted above for FMLA leave). Therefore, employers should adopt policies clearly stating that the salary will not be reduced for absences of less than a full day, except those permitted by law, if the employee has no available accrued leave to access. Finally, Oregon employers should be aware that ORS 10.090 prohibits employers from requiring employees to use accrued leave for absences occasioned by jury service.

If an employee who has exhausted all paid leave banks departs early and is absent for two and a half days on account of the flu, may I reduce that employee’s salary?

Yes, as long as you have a paid leave plan that provides compensation in cases of illness or disability (which most employers have due to the Oregon sick time law). However, once paid leave is exhausted, the salary may only be reduced for full-day absences, such that if the employee misses two and a half days, the employer may only reduce the salary for the two full-day absences and not the half day absence.

May I deduct for full-day absences of sick leave if the employee has not been with my company long enough to qualify for compensation under my sick leave plan?

Yes, you may make reductions to the employee’s salary in full-day increments.

May an employer require an exempt employee to use accrued paid leave during a part-week shutdown?

Yes, an employer may require the use of appropriate paid leave during a part-week shutdown, so long as the employee receives their full weekly salary. This means, however, that an employee who has exhausted all paid leave must, nonetheless, receive their full weekly salary when a part-week shutdown occurs.

Is it permissible to reduce an exempt employee’s salary if we shut down for part of a week due to slowdowns in orders, equipment failures, or other operating requirements of the business?

Generally, no. An employee will not be considered to be paid on a “salary basis” if deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business. If the employee is ready, willing and able to work, deductions may not be made for time when work is not available. 29 C.F.R. § 541.602(a).

That said, the regulations do not prohibit prospective changes to exempt employees’ salaries (provided they still receive the minimum required salary). An employer may reduce the regular workweek of an exempt employee, for example, from 40 hours to 32 hours, with a commensurate reduction in pay, provided the change applies to all workweeks going forward. In other words, payroll savings to the employer come from having reduced an exempt employee’s salary, not from making occasional or periodic deductions from that salary. Employers should ensure that such changes are not so frequent or so closely tied to hours worked that an employee is effectively not paid on a salary basis.

Note that public employees (but not private employees) may be “furloughed” for budgetary reasons without losing their exempt status. 29 C.F.R. § 541.710 and OAR 839-020-0330(2).

What kinds of deductions would not be permissible if the employer wants to regard the employee as being paid on a “salary basis?”

Deductions may not be made for:

Time off of less than full-week increments because work was not available;
Absences of less than full weeks occasioned by the employer or by the operating requirements of the business;
Absences caused by jury duty, attendance as a witness or temporary military leave. The employer may, however, offset any amounts received by an employee as jury or witness fees or military pay for a particular week against the salary due for that particular week without loss of the exemption; and
Absences of less than one day.

Note: Although the employer is prohibited from docking an exempt employee for such absences, the employer may require the exempt employee to use accrued paid leave, except for jury service.

For employers