Salary Basis Test

What is Salary Basis Test?

The salary basis test is one of the criteria used under the Fair Labor Standards Act to determine whether an employee qualifies as exempt from overtime requirements. To pass the test, an employee must receive a predetermined, fixed salary that is not reduced based on the quality or quantity of work performed.

Why Salary Basis Test Matters

The salary must meet or exceed the minimum threshold set by the Department of Labor, and it must be paid on a consistent basis regardless of the number of hours or days worked in a given week. Certain deductions, such as for full-day personal absences, are permitted without violating the salary basis requirement.

Employers who improperly dock an exempt employee’s pay risk reclassifying that employee as non-exempt, which can trigger overtime liability. HR and payroll teams must understand the salary basis test to maintain correct classifications and avoid costly compliance errors.