# Prologue — Claridge Hotel & Casino v. McLaughlin

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Prologue
- **Published:** January 1, 1988
- **Citation:** 488 U.S. 925

## Text

A58

Vv. IT IS FURTHER ORDERED, ADJUDGED AND
DECREED that neither the commencement of this action
nor the provisions of this Order and Judgment shall in any
way affect, determine, or prejudice any and all legal rights
of any employees of defendant not listed in Exhibit A, be
they current or former employees, to file any action against
defendant under section 16(b) of the Act or likewise for
any current or former employee listed in Exhibit A to file
any action against defendant under section 16(b) of the
Act for any violations alleged to have occurred after Sep-
tember 25, 1986.

VI. ORDERED, ADJUDGED, AND DECREED that
the costs of this action shall be taxed by the Clerk against
the defendant.

/s/ Mitchell H. Cohen
Mitchell H. Cohen
Senior Judge
United States District Court

DATED: Camden, New Jersey
June 8, 1987

A59

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A771

SOL: PSM: vk

25054

IN UNITED STATES DISTRICT COURT FOR
THE DISTRICT OF NEW JERSEY
CAMDEN VINCINAGE
HONORABLE JEROME B. SIMANDLE

$2,196.55
$1,318.42

$6,877.77
$4,128.19

Civil Action No. 84-4336
(Non-Jury Trial)
(COHEN, J.)

09-Oct-84

25-Sep-86 09-Oct-84

WILLIAM E. BROCK, Secretary of Labor,
United States Department of Labor,
Plaintiff,

V.

THE CLARIDGE HOTEL AND CASINO
Defendant.

43-Sep-86

£9-UCT 82

24-Oct-82

JOINT FINAL PRE-TRIAL ORDER

The following shall constitute the Final Pre-Trial
Order pursuant to Rule 16 of the Federal Rules of Civil
Procedure and this Final Pre-Trial Order shall govern the
conduct of the trial of this case. Amendments to this
order will be allowed only in exceptional circumstances
to prevent manifest injustice.

APPEARANCES:

Attorneys for Defendant:
Charles J. Hanlon, Jr., Esq.

Ss tCGARI, IHUMAD
STRASSHEIM, MARYANN

The Claridge Hotel and Casino
Indiana Avenue at Boardwalk
Atlantic City, New Jersey 08401

A72

Adin C. Goldberg, Esq.

Spengler, Carlson, Gubar |
Brodsky & Frischling

280 Park Avenue

New York, New York 10017

Attorneys for Plaintiff:

FRANCIS X. LILLY
Solicitor of Labor

PATRICIA M. RODENHAUSEN
Acting Regional Solicitor

BY: PERCY S. MILLER
Attorney

PARTI. JURISDICTION

This Court has jurisdiction of the subject matter pur-
suant to section 17 of the Fair Labor Standards Act, 29
U.S.C. $217. Section 17 expressly confers upon this court,
and all district courts of the United States, jurisdiction to
restrain violations of the Act, including the restraint from
withholding unpaid minimum wage or overtime wages
found to be due.

The defendant admits it is a limited partnership, or-
ganized under the laws of the State of New Jersey, having
its principal office and place of business at Park Place and
Indiana Avenue, Atlantic City, New Jersey, which is with-
in the jurisdiction of this court. This court has in personam
jurisdiction of the defendant.

PART II. STIPULATED FACTS:

1. The Claridge Hotel and Casino has acted as an
employer within the meaning of the Fair Labor Standards

A73

Act by regulating the employment of all persons employed
by it. The Claridge Hotel and Casino employs and has
employed a number of employees who are engaged in
commerce or in the production of goods for commerce.
(Answer dated November 16, 1984 and Amended Answer
dated February 14, 1985.)

2. The defendant is an enterprise engaged in com-
merce within the meaning of section 3(s)(1) of the Fair
Labor Standards Act. (Amended Answer dated February
14, 1985).

3. From October 1, 1981 through January 30, 1983,
persons regularly employed as boxpersons, floorpersons
and pit bosses in each workweek worked more than forty
(40) hours per week with some individual exceptions.
(Defendant’s Responses to Plaintiff’s First Set of Requests
for Admissions, Responses 4, 6, and.8; Deposition Paul
Burst, page 16 line 23 through page 27, line 15).

4. Subsequent to January 30, 1983 and to date, per-
sons regularly employed as boxpersons, floorpersons and
pit bosses in each workweek worked more than forty (40)
hours per week with some individual exceptions. (Depo-
sition Paul Burst, page 16 line 23 through page 27 line 15.)

5. From October 1, 1981 to date, persons employed
as boxpersons, floorpersons and pit bosses have not been
paid on a shift rate basis. (Defendant's Responses to Plain-
tiff’s First Set of Requests for Admissions, responses 15
through 20.)

6. Between October 1, 1981 thrcugh the present, un-
der no circumstances were persons employed as boxpersons,
floorpersons and pit bosses ever paid one and one-half
times the hourly rate at which they were engaged for work

A74

performed as boxpersons, floorpersons and pit bosses. (De-
fendant’s Responses to Plaintiff's First Set of Requests for
Admissions, responses 21, 22 and 23; Deposition of Paul
Burst, page 97 line 11 through page 100 line 9; Deposition
of Carol Livingstone, page 8, line 19 through page 13 line
8.)

7. Between October 1, 1981 through January 30, 1983,
persons employed as boxpersons, floorpersons and pit
bosses who worked less than a full day because of personal
reasons were paid an hourly rate only for the hours actu-
ally worked on that day. (Defendani’s Responses to Plain-
tiff’s First Set of Requests for Admissions, responses 30,
31 and 32.)

8. Subsequent to January 30, 1983 and to date, per-
sons employed as boxpersons, floorpersons and pit bosses
who worked less than a full day because of personal rea-
sons were paid an hourly rate only for the hours actually
worked on that day. (Deposition Paul Burst, page 112
line 18 through page 123 line 13.)

9. The Claridge Hotel and Casino at no time, with
reference to its Atlantic City operation, sought an opinion,
oral or otherwise from the Wage and Hour Administrator
or from the Secretary of Labor that its method of com-
pensating boxpersons, floorpersons and pit bosses complied
with the provisions of the Fair Labor Standards Act rela-
tive to overtime pay. (Defendant’s Responses to Plaintiff's
Second Set of Interrogatories, response 19.)

10. The Claridge Hotel and Casino at no time re-
ceived a written opinion from the Wage and Hour Ad-
ministrator or the Secretary of Labor commenting on the
pay plan in effect at its Atlantic City operation relative to
compensation of boxpersons, floorpersons and pit bosses.

A775

(Defendant’s Responses to Plaintiff's Second Set of Inter-
rogatories, Response 20. )

11. The Claridge Hotel and Casino, through its of-
ficers and officials, was aware that the provisions of the
Fair Labor Standards Act applied to its operation. The
Claridge Hotel and Casino intended that persons employed
as boxpersons, floorpersons and pit bosses not be com-
pensated at time and one-half for hours of work in excess
of forty (40) in a week performed as a boxperson, floor-
person and pit boss. (Defendant’s Responses to Plaintiff's
First Set of Requests for Admissions, responses 35 through
38; Deposition of Paul Burst, page 97, line 11 through page
100 line 9.)

12. Attached to this Joint Final Pre-Trial Order are
true and exact copies of the defendant’s weekly compen-
sation plan applicable to boxpersons, floorpersons and pit
bosses. The forms were identified as Exhibits 12 and 13
in the August 19, 1985 deposition of Paul Burst, Director
of Gaming Operations, copies of which are attached to this
Pre-Trial Order. (Defendant’s Responses to Plaintiff's
Third Set of Interrogatories, responses 1(a) through 4(h);
Joint Exhibit #10.)

13. Paul Burst, Director of Gaming Operations of
The Claridge Hotel and Casino is the person most knowl-
edgeable about the operation of the defendant’s compensa-
tion plan referred to above at Stipulation #12, particularly
with reference to situations where an employee subject to
the plan was absent due to sickness or personal reasons.
(Defendant’s response to Plaintiff's First Set of Interroga-
tories, response 23.)

14. The Claridge Hotel and Casino paid several per-
sons a total weekly compensation that was less than $250

A76

for the week. The persons and the workweeks are iden-
tified in Plaintiff’s First Set of Requests for Admissions
41 through 50 and 54 through 59 and Defendant’s responses
thereto, and defendant’s response to interrogatory 10, Plain-
tiff’s Second Set of Interrogatories.

15. In each instance referred to above in Stipulation
+14 the total compensation was derived by multiplying
the total hours worked for the week by an hourly amount
which was derived by dividing a daily rate by eight (8),
nine (9) or ten (10) hours.

16. During the period October 1, 1981 through the
present under defendant’s compensation plan in any week
where although some service was performed, if an absence
was voluntary the plan was inapplicable. (Defendant’s
Responses to Plaintiff’s First Set of Requests for Admis-
sion, response 61; Deposition of Paul Burst, page 111, line
8 through page 121 line 2; deposition of Caro] Livingstone,
page 30, line 24 through page 36 line 20.)

17. During the period October 1, 1981 through Jan-
uary 30, 1983, under defendant’s compensation plan, re-
ferred to in Stipulation + 12 above, in any week where
although some service was performed, if an absence was
due to personal reasons, the plan was inapplicable. (De-
fendant’s Responses to Plaintiff's First Set of Requests
for Admission, response 62.)

18. During the period October 1, 1981 through Jan-
uary 30, 1983, when a boxperson or floorperson went
home early as a result of an “early out” his compensa-
tion for the day was calculated by multiplying the num-
ber of hours of actual work for the day by an hourly
amount derived by dividing the applicable daily rate by

AT77

eight, nine or ten hours. (Defendant’s Responses to Plain-
tiff’s First Set of Requests for Admission, responses 68
and 69.)

19. During the period October 1, 1981 through the
present, persons employed as pit bosses, boxpersons and
floor persons had, as the primary duty, the management
of the enterprise in which they were employed or of a
customarily recognized department or subdivision thereof,
as those terms are used in 29 CFR §541.1(a) and §541.119.
(Plaintiff's Response to Defendant’s First Request for
Admissions, para. 1, 2 and 3.)

20. During the period October 1, 1981 through the
present, persons employed as pit bosses, boxpersons and
floor persons customarily and regularly directed the work
of two or more other employees therein, as those terms
are used in 29 CFR §541.1(b) and §541.119. (Plaintiff's
Response to Defendant’s First Request for Admissions,
para. 4, 5 and 6.)

PART III. PLAINTIFF’S CONTESTED FACTS:

A. Plaintiff intends to prove the following contested
facts in regard to liability:

(1) Persons employed as boxpersons, floorpersons
and pit bosses during the period October 1, 1981
to date were not compensated for their services
on a salary basis at a rate of not less than $155
per week.

(2) Persons employed as boxpersons, floorpersons
and pit bosses during the period October 1, 1981
to date are not exempt from the overtime pro-
visions of the Fair Labor Standards Act.

A778

B. Plaintiff intends to prove the following contested
facts in regard to damages:

(1)

(2)

In each week from October 1, 1981 to the present
in which the subject employees worked and were
paid straight time hourly wages for hours worked
over forty (40) each person is due a sum equal
to 50% of the straight time hourly wages al-
ready paid for each hour worked over forty (40).

In each week from October 1, 1981 to the present,
the failure to pay overtime wages to boxpersons,
floorpersons and pit bosses was not inadvertent
but conscious and intended.

The defendant was aware not only that the Fair
Labor Standards Act applied to its operation
generally but was * * *.

A79

APPENDIX F

§ 213. Exemptions

(a) The provisions of sections 206 and 207 of this
title shall not apply with respect to—

(1) any employee employed in a bona fide ex-
ecutive, administrative, or professional capacity, or
in the capacity of outside salesman (as such terms
are defined and delimited from time to time by
regulations of the Secretary, subject to the provisions
of the Administrative Procedure Act, except that an
employee of a retail or service establishment shall
not be excluded from the definition of employee em-
ployed in a bona fide executive or administrative
capacity because of the number of hours in his work-
week which he devotes to activities not directly or
closely related to the performance of executive or
administrative activities, if less than 40 per centum
of his hours worked in the workweek are devoted
to such activities); or

A80

APPENDIX G

§ 541.1 Executive.

The term “employee employed in a bona fide executive
* * * capacity” in section 13(a) (1) of the Act shall mean
any employee:

(a) Whose primary duty consists of the management
of the enterprise in which he is employed or of a custom-
arily recognized department of subdivision thereof; and

(b) Who customarily and regularly directs the work
of two or more other employees therein; and

(c) Who has the authority to hire or fire other em-
ployees or whose suggestions and recommendations as to
the hiring or firing and as to the advancement and pro-
motion or any other change of status of other employees
will be given particular weight; and

(d) Who customarily and regularly exercises discre-
tionary powers; and

(e) Who does not devote more than 20 percent, or,
in the case of an employee of a retail or service establish-
ment who does not devote as much as 40 percent, of his
hours of work in the workweek to activities which are not
directly and closely related to the performance of the work
described in paragraphs (a) through (d) of this section:
Provided, That this paragraph shall not apply in the case
of an employee who is in sole charge of an independent
establishment or a physically separated branch establish-
ment, or who owns at least a 20-percent interest in the
enterprise in which he is employed; and

———

A81

(f) Who is compensated for his services on a salary
basis at a rate of not less than $155 per week (or $130 per
week, if employed by other than the Federal Government
in Puerto Rico, the Virgin Islands, or American Samoa),
exclusive of board, lodging, or other facilities: Provided,
That an employee who is compensated on a salary basis
at a rate of not less than $250 per week (or $200 per week,
if employed by other than the Federal Government in
Puerto Rico, the Virgin Islands or American Samoa), ex-
clusive of board, lodging, or other facilities, and whose
primary duty consists of the management of the enterprise
in which the employee is employed or of a customarily
recognized department or subdivision thereof, and includes
the customary and regular direction of the work of two
or more other employees therein, shall be deemed to meet
all the requirements of this section.

+ * *

§ 541.118 Salary basis.

(a) An employee will be considered to be paid “on
a salary basis” within the meaning of the regulations if
under his employment agreement he regularly receives
each pay period on a weekly, or less frequent basis, a pre-
determined amount constituting all or part of his com-
pensation, which amount is not subject to reduction be-
cause of variations in the quality or quantity of the work
performed. Subject to the exceptions provided below, the
employee must receive his full salary for any week in
which he performs any work without regard to the num-
ber of days or hours worked. This policy is also subject
to the general rule that an employee need not be paid for
any workweek in which he performs no work.

A82

(1) An employee will not be considered to be “on
a salary basis” if deductions from his predetermined com-
pensation are made for absences occasioned by the em-
ployer or by the operating requirements of the business.
Accordingly, if the employee is ready, willing, and able to
work, deductions may not be made for time when work
is not available.

(2) Deductions may be made, however, when the
employee absents himself from work for a day or more
for personal reasons, other than sickness or accident. Thus,
if an employee is absent for a day or longer to handle per-
sonal affairs, his salaried status will not be affected if de-
ductions are made from his salary for such absences.

(3) Deductions may also be made for absences of a
day or more occasioned by sickness or disability (including
industrial accidents) if the deduction is made in accor-
dance with a bona fide plan, policy or practice of providing
compensation for loss of salary occasioned by both sick-
ness and disability. Thus, if the employer’s particular plan,
policy or practice provides compensation for such absences,
deductions for absences of a day or longer because of sick-
ness or disability may be made before an employee has
qualified under such plan, policy or practice, and after he
has exhausted his leave allowance thereunder. It is not
required that the employee be paid any portion of his
salary for such days or days for which he receives compen-
sation for leave under such plan, policy or practice, Sim-
ilarly, if the employer operates under a State sickness and
disability insurance law, or a private sickness and dis-
ability insurance plan, deductions may be made for ab-
sences of a working day or longer if benefits are provided
in accordance with the particular law or plan. In the case
of an industrial accident, the “salary basis” requirement

a |

i einai

A83

will be met if the employee is compensated for loss of
salary in accordance with the applicable compensation law
or the plan adopted by the employer, provided the em-
ployer also has some plan, policy or practice of providing
compensation for sickness and disability other than that
relating to industrial accidents.

(4) Deductions may not be made for absences of an
employee caused by jury duty, attendance as a witness,
or temporary military leave. The employer may, how-
ever, 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.

(5) Penalties imposed in good faith for infractions
of safety rules of major significance will not affect the em-
ployee’s salaried status. Safety rules of major significance
include only those relating to the prevention of serious
danger to the plant, or other employees, such as rules pro-
hibiting smoking in explosive plants, oil refineries, and coal
mines.

(6) The effect of making a deduction which is not
permitted under these interpretations will depend upon the
facts in the particular case. Where deductions are gen-
erally made when there is no work available, it indicates
that there was no intention to pay the employee on a salary
basis. In such a case the exemption would not be applic-
able to him during the entire period when such deductions
were being made. On the other hand, where a deduction
not permitted by these interpretations is inadvertent, or
is made for reasons other than lack of work, the exemption
will not be considered to have been lost if the employer
reimburses the employee for such deductions and promises
to comply in the future.

A84

(b) Minimum guarantee plus extras. It should be
noted that the salary may consist of a predetermined
amount constituting all or part of the employee's compen-
sation. In other words, additional compensation besides
the salary is not inconsistent with the salary basis of pay-
ment. The requirement will be met, for example, by a
branch manager who receives a salary of $155 or more a
week and in addition, a commission of 1 percent of the
branch sales. The requirement will also be met by a
branch manager who receives a percentage of the sales or
profits of the branch, if the employment arrangement also
includes a guarantee of at least the minimum weekly salary
(or the equivalent for a monthly or other period) required
by the regulations. Another type of situation in which
the requirement will be met is that of an employee paid
on a daily or shift basis, if the employment arrangement
includes a provision that the employee will receive not less
than the amount specified in the regulations in any week
in which the employee performs any work. Such arrange-
ments are subject to the exceptions in paragraph (a) of
this section. The test of payment on a salary basis will
not be met, however, if the salary is divided into two parts
for the purpose of circumventing the requirement of pay-
ment “on a salary basis”. For example, a salary of $200
in each week in which any work is performed, and an addi-
tional $50 which is made subject to deductions which, are
not permitted under paragraph (a) of this section.

(c) Initial and terminal weeks. Failure to pay the
full salary in the initial or terminal week of employment
is not considered inconsistent with the salary basis of
payment. In such weeks the payment of a proportionate
part of the employee’s salary for the time actually worked
will meet the requirement. However, this should not
be construed to mean that an employee is on a salary

A85

basis within the meaning of the regulations if he is em-
ployed occasionally for a few days and is paid a propor-
tionate part of the weekly salary when so employed.
Moreover, even payment of the full weekly salary under
such circumstances would not meet the requirement, since
casual or occasional employment for a few days at a
time is inconsistent with employment on a salary basis
within the meaning of the regulations.

* * *

§ 541.119 Special proviso for high salaried executives.

(a) Except as otherwise noted in paragraph (b) of
this section, § 541.1 contains an upset or high salary
proviso for managerial employees who are compensated
on a salary basis at a rate of not less than $250 per week
exclusive of board, lodging, or other facilities. Such a
highly paid employee is deemed to meet all the require-
ments in paragraphs (a) through (f) of § 541.1 if the
employee’s primary duty consists of the management of
the enterprise in which employed or of a customarily
recognized department or subdivision thereof and includes
the custornary and regular direction of the work of two
or more other employees therein. If an employee qual-
ifies for exemption under this proviso, it is not necessary
to test that employee’s qualifications in detail under para-
graphs (a) through (f) of § 541.1 of this part.

(b) In Puerto Rico, the Virgin Islands, and Amer-
ican Samoa the proviso of § 541.1(f) applies to those
managerial employees (other than employees of the Fed-
eral Government) who are paid on a salary basis at a
rate of not less than $200 per week.

(c) Mechanics, carpenters, linotype operators, or
craftsmen of other kinds are not exempt under the pro-
viso no matter how highly paid they might be.

* * *

A86

APPENDIX H

United States Department of Labor
Wage and Hour Division
Washington, D. C.

“EXECUTIVE, ADMINISTRATIVE,
PROFESSIONAL... OUTSIDE
SALESMAN” REDEFINED

Effective October 24, 1940
Report and Recommendations of the

Presiding Officer
at Hearings Preliminary to Redefinition

A87

EXEMPTION APPLIES ONLY TO SALARIED
EMPLOYEES

It is hardly necessary to restate what has always been
the position of the Wage and Hour Division, namely, that
the $30 for a workweek can be translated into equivalent
terms for longer periods. Thus the requirement is fulfilled
if the worker is paid $130 for a month or a comparable
amount for any other pay period. However, the require-
ment is not fulfilled by the earnings of a person who is
paid on an hourly basis. The shortest pay period which
can properly be understood to be appropriate for a person
employed in an executive capacity is obviously a weekly
pay period and hourly paid employees should not be en-
titled to the exemption. The executive status in and of
itself connotes at least the tenure implied by a weekly
pay period as the very minimum. Accordingly, it is rec-
ommended that this clause in the definition read: “Who
is compensated for his services on a salary basis at not less
than $30 per week (exclusive of board, lodging, or other
facilities).” One final explanation may be made. In some
instances persons who would otherwise qualify as execu-
tive employees, particularly sales managers and branch
sales managers, are paid in part or in full by methods of
compensation which include commissions, drawing ac-
counts, and other items. In such instances the salary re-
quirement will be met if the employee is guaranteed a net
compensation of not less than $30 a week “free and clear.”
Similarly, if board and lodging are involved, there should
be a “free and clear” payment of $30 each week in cash.

A88

It was also suggested that the phrase should read “at
not less than the rate of $30 * * * for a workweek.””®
It was explained that this proviso was to take care of cer-
tain executives who are hired on a part-time basis. This
would seem quite unnecessary, however, for a person earn-
ing at such a rate for part-time work would clearly fulfill
the minimum wage requirements of the act and, if his work
were only part-time, would not be subject to overtime pay-
ments. The modification therefore seems unnecessary.

* * x

Appendix A. PRESENT DEFINITIONS

PART 541

Regulations Defining and Delimiting the Terms “Any
Employee Employed in a Bona Fide Executive, Ad-
ministrative, Professional, or Local Retailing Capacity,
or in the Capacity of Outside Salesman” Pursuant to
section 13 (a) (1) of the Fair Labor Standards Act

Section 541.1. Executive and administrative.

The term “employee employed in a bona fide exec-
utive (and) administrative * * * capacity” in section 13
(a) (1) of the act shall mean any employee whose pri-
mary duty is the management of the establishment, or
a customarily recognized department thereof, in which
he is employed, and who customarily and regularly directs
the work of other employees therein, and who has the
authority to hire and fire other employees or whose
suggestions and recommendations as to the hiring and

79. Statement of Noel Sargent, National Association of
Manufacturers, record June 3-5, hearing, vol. III, p. 374.

A89

firing and as to the advancement and promotion or any
other change of status of other employees will be given
particular weight, and who customarily and regularly
exercises discretionary powers, and who does no sub-
stantial amount of work of the same nature as that per-
formed by nonexempt employees of the employer, and
who is compensated for his services at not less than $30
(exclusive of board, lodging, or other facilities) for a
workweek.

* * *

Appendix B. RECOMMENDED DEFINITIONS
EXECUTIVE
Section 541.1. Executive.

The term “employee employed in a bona fide exec-
utive * * * capacity” in section 13 (a) (1) of the act
shall mean any employee—

(A) Whose primary duty consists of the manage-
ment of the establishment in which he is employed or
of a customarily recognized department or subdivision
thereof, and

(B) Who customarily and regularly directs the work
of other employees therein, and

(C) Who has the authority to hire or fire other
employees or whose suggestions and recommendations as
to the hiring or firing and as to the advancement and
promotion or any other change of status of other em-
ployees will be given particular weight, and

(D) Who customarily and regularly exercises dis-
cretionary powers, and

A90

(E) Who is compensated for his services on a salary
basis at not less than $30 per week’ (exclusive of board,
lodging, or other facilities), and

(F) Whose hours of work of the same nature as
that performed by nonexempt employees do not exceed
20 percent of the number of hours worked in the work-
week by the nonexempt employees under his direction;
provided that this subsection (F) shall not apply in the
case of an employee who is in sole charge of an inde-
pendent establishment or a physically separated branch
establishment.

A91

APPENDIX I
Part I Chap. 10 719
EFFECT OF DEDUCTIONS FROM SALARY
Effect of Disciplinary Deductions from Salary—

Wage and Hour Division Release No. A-9,
Issued Aug. 24, 1944

An employee will be considered to be paid on a
“salary basis” within the meaning of sections 541.1, 541.2
or 541.3 of Regulations, Part 541 if under his employment
agreement he regularly receives each pay period, on a
weekly, biweekly, semi-monthly, monthly or annual basis,
a predetermined amount constituting all or part of his
compensation, which amount is not subject to reduction
because of variations in the number of hours worked
or in the quantity or quality of the work performed
during the pay period. However, the fact that less than
this amount is paid for a particular pay period because
disciplinary deductions are made for unreasonable ab-
sences would not in itself prove that the employee is
not employed on a salary basis. On the other hand, since
it is well recognized that bona fide executive, admin-
istrative, and professional employees are normally al-
lowed some latitude with respect to the time spent at
work, an employee will not be regarded as being paid
on a salary basis if deductions are made for those types
of absences ordinarily allowed such employees. For ex-
ample, an employee is not being paid on a salary basis
if the employer makes deductions from his salary for
an afternoon when he goes home early or when he
occasionally takes a day off, unless, under the circum-
stances of a particular case, such absences must be con-
sidered unreasonable.

A92

APPENDIX J:

United States Department of Labor
Maurice J. Tobin, Secretary

Wage and Hour and Public Contracts Divisions
Wm. R. McComb, Administrator

Washington, D. C.

REPORT AND RECOMMENDATIONS
On Proposed Revisions of Regulations, Part 541

Defining the Terms

“Executive” “Administrative”
“Professional”
“Local Retailing Capacity”
“Outside Salesman”’

eK GS as contained in Section 13(a)(1) of the
Fair Labor Standards Act of 1938, providing
exemptions from the wage and hour provisions of

the act.
June 1949

* * os

A93

“On a Salary * * * Basis”

The notice of hearing invited evidence on the need for
revision or definition of the term “on a salary * * * basis.”
In response to this notice, a number of proposals relating
to the “salary basis” requirements in the regulations were
made in the course of the hearing. One of these was
that the requirement of payment “on a salary * * * basis”
be eliminated and that “average compensation” be used
instead:*® another, that employees be permitted to qualify
for exemption even if paid an hourly wage.*' Some wit-
nesses suggested that the term “salary basis” be defined
to mean payment of a fixed or guaranteed sum.” The
evidence at the hearing showed clearly that bona fide ex-
ecutive, administrative, and professional employees are
almost universally paid on a salary or fee basis. Compen-
sation on a salary basis appears to have been almost uni-
versally recognized as the only method of payment con-
sistent with the status implied by the term “bona fide”
executive.** Similarly, payment on a salary (or fee)
basis is one of the recognized attributes of administrative
and professional employment. The proposals to eliminate
the requirement and to apply an hourly rate or average
earnings test may therefore be rejected as inconsistent
with true executive, administrative or professional status.

90. National Association of Motor Bus Operators, transcript,
p. 1792.

91. Lennox Furnace Co., S. L. No. 9.

92. Office Employees International Union, AFL, transcript,
p. 2734; National Coal Association, transcript, p. 1473: and Cen-
tral Pennsylvania Coal Producers’ ‘Association, transcript, p. 1581.

93. See, for example, transcript, pp. 99-100, 134-135, 399,
707, 771-772, 999-1000, 1431-1432. The argument was also made,
however, that the requirement of payment on a salary basis
is illegal. See Exhibit No. 15.

Ag4

A number of questions have arisen in the past in
connection with the interpretation of the phrase “on a
salary * * * basis” particularly with respect to the effect
of deductions on the salaried status of an employee. The
problem became of some importance during the war when
the practice of making such deductions was adopted by
some companies engaged in war production as a disciplin-
ary measure to discourage absenteeism among executive
and administrative employees.** This practice raised seri-
ous questions as to whether any employees to whom it was
applied were actually employed “on a salary * * * basis”
in accordance with the provisions of the regulations. In-
vestigation by the Divisions indicated that this changed
practice had become sufficiently widespread to warrant
the conclusion that the wartime industrial practice dif-
fered from the pre-war practice and that such disciplinary
deductions were no longer inconsistent with payment “on
a salary * * * basis.” In an effort to meet the wartime
problems and to clarify the meaning of the term “on a
salary * * * basis” the Divisions issued a restatement
of position, the pertinent portion of which follows:

An employee will be considered to be paid on a “salary
basis” within the meaning of sections 541.1, 541.2, or
541.3 of Regulations, Part 541, if under his employ-
ment agreement he regularly receives each pay period,
on a weekly, biweekly, semimonthly, monthly, or an-
nual basis, a predetermined amount constituting all or
part of his compensation, which amount is not subject
to reduction because of variations in the number of
hours worked or in the quantity or quality of the
work performed during the pay period. However, the

94. Transcript, pp. 23, 1253-1254.

A95

fact that less than this amount is paid for a particular
pay period because disciplinary deductions are made
for unreasonable absences would not in itself prove
that the employee is not employed on a salary basis.
On the other hand, since it is well recognized that
bona fide executive, administrative, and professional
employees are normally allowed some latitude with
respect to the time spent at work, an employee will
not be regarded as being paid on a salary basis if
deductions are made for those types of absences or-
dinarily allowed such employees. For example, an
employee is not being paid on a salary basis, if the
employer makes deductions from his salary for an
afternoon when he goes home early or when he oc-
casionally takes a day off, unless, under the cir-
cumstances of a particular case, such absences must
be considered unreasonable.”

As a result of this statement of position the problems
created by the peculiar wartime conditions in many plants
were solved but as an incident thereof, numerous admin-
istrative difficulties were encountered. For example, em-
ployers as well as the Divisions were faced with the need
for determining in particular cases whether absences
were reasonable or unreasonable and whether unreason-
able absences included absences for longer periods than
were allowed under established company plans for sick
leave and “annual” leave. Since the answer to this latter
question was determined to depend upon the reasonable-
ness of the particular leave plan, employers had to decide
for themselves and the Divisions in many instances were

95. Release A-9 dated August 24, 1944, ‘Payment on ‘Sal-
ary Basis’ for Executive, Administrative and Professional Em-
ployees Clarified.”

A96

compelled to rule on specific leave plans to determine
whether the leave plans were “reasonable” in nature.
Employers were thus subject to considerable uncertainty
prior to obtaining the opinion of the Divisions and the
Divisions were faced with an undesirable administrative
burden in giving such opinions. In my opinion, moreover,
the building of such an elaborate structure of interpreta-
tion upon the simple phrase “on a salary * * * basis” should
be avoided if possible in the interests of good administra-
tion.

The testimony at the hearings indicated that the prac-
tice of disciplining bona fide executive, administrative, and
professional employees by making deductions from their
salaries had been a wartime phenomenon, resulting from
rapid upgrading, the pressure of long hours, and other
temporary conditions. Such deductions are rarely made
today. The disciplining of such employees in the rare
instances where it is needed is usually accomplished in
other ways than by deductions from salary.** There ap-
pears to be no present need for a definition of “salary
basis” as difficult to apply as the one now followed by the
Divisions, particularly since it is not consistent with the
common understanding of the phrase as it applies to bona
fide executive, administrative, and professional em-
ployees.”” In view of the changed conditions, payment of
anything less than the full salary seems to cast doubt upon
the bona fide character of the employee’s executive, ad-
ministrative, or professional status.

96. See, for example, transcript, pp. 23, 134-135, 399, 630-
632, 1001, 1336-1337, 2759.

97. Some representatives of employers urged that provision
for deductions be retained. For example, see transcript, p. 1359.

A97

I recommend that the official explanation of the reg-
ulations make it clear that the term “on a salary * * *
basis” requires that the employee receive his full salary
for any week in which he performs any work without
regard to the number of days or hours worked.” This
recommendation may be accomplished by defining the
term in the following language:

An employee will be considered to be paid on a salary
basis within the meaning of these regulations, if under
his employment agreement he regularly receives each
pay period on a weekly, or less frequent basis, a
predetermined amount constituting all or part of his
compensation, which amount is not subject to reduc-
tion because of variations in the number of hours -
worked in the workweek or in the quality or quan-
tity of the work performed.

The question may be raised in connection with the
above recommendation whether the proposed definition
of “salary basis” in all cases excludes employment on a
commission basis, hourly rate, percentage of profit, or
similar methods of payment resulting in varying amounts
of weekly earnings. It should be noted that the lan-
guage “a predetermined amount constituting all or part
of his compensation” is used in the proposed definition.
It is the purpose of this phrase to make it clear that
additional compensation besides the salary is not incon-
sistent with the salary basis of payment. The require-

98. Later in this report the recommendation is made to
issue an explanatory bulletin together with the revised regu-
lations.

99. This recommendation is not intended to affect the Divi-
sions’ general position under the act that payment is not required
in any week in which no work is performed.

A98

ment will be met, for example, by a branch manager
who receives a salary of $75 or more per week and, in
addition, a commission of 1 percent of the branch sales.
The requirement will also be met by a branch manager
who receives a percentage of the sales or profits of his
branch, if the employment arrangement also includes a
guarantee of at least the minimum weekly salary (or
the equivalent for a monthly or other period) required
by the regulations. Another type of situation in which
the requirement will be met is that of an employee paid
on a daily or shift basis, if the employment arrangement
includes a provision that he will receive not less than
the amount specified in the regulations in any week in
which he performs any work.’ The test of payment
on a salary basis will not be met, however, if the salary
is divided into two parts for the purpose of circumventing
the requirement that the full salary must be paid in any
week in which any work is performed. For example,
a salary of $100 a week may not arbitrarily be divided
into a guaranteed minimum of $75 paid in each week
in which any work is performed, and an additional $25
which is made subject to deductions.

Failure to pay the full salary in the initial or ter-
minal week of employment is not considered inconsistent
with the salary basis of payment. In such weeks the
payment of a proportionate part of the employee’s salary
for the time actually worked will meet the requirement.
However, this should not be construed to mean that an
employee is on a salary basis within the meaning of the

100. A representative of the coal industry testified that
section foremen who are paid on a daily basis plus a minimum
weekly guarantee enjoy all the privileges of salaried employees.
Transcript, pp. 1522-1524.

Ag9

regulations if he is employed occasionally for a few days
and is paid a proportionate part of the weekly salary
when so employed. Moreover, even payment of the full
weekly salary under such circumstances would not meet
the requirement, since casual or occasional employment
for a few days at a time is inconsistent with employ-
ment on a salary basis within the meaning of the reg-
ulations.

a * *

Need for an Explanatory Bulletin

Reference has been made in this report to an ex-
planatory bulletin or an “official explanation” to be issued
in connection with the regulations. Explanation or clar-
ification of various portions of the regulations was sug-
gested by many witnesses in the course of the hearing.”**
Some witnesses showed a lack of familiarity with rulings
made by the Divisions and a lack of knowledge of how
the Divisions applied the regulations in certain kinds of
cases.2*8 The issuance of such explanatory material has
been repeatedly urged by the Divisions’ regional directors
who believe that it would be of great value not only to
employers and employees but also to the Divisions’ field
staff. It is also clear that the material in the report of
the presiding officer in 1940 (the Stein Report), which
has been the Divisions’ explanatory bulletin on these
regulations, needs revision in the light of the Divisions’
rulings and the court decisions since its issuance. If the
recommendations made above with respect to revisions
in the regulations are adopted, it will be necessary to

237. See, for example, transcript, pp. 562, 679, 1129, 1177,
1441, 2226, 2766, 3134-3135. See also S. L. No. 85.

238. For example, see transcript, pp. 3675-3676, 3678-3679.

A100

issue material illustrating their application in various
situations. The issuance of some explanatory material
is also essential in order to give effect to certain recom-
mendations made in this report which do not involve
changes in the language of the regulations, but are based
on the meaning to be given the terms used in the reg-
ulations.

I recommend that simultaneously with the final action
taken on the recommendations in this report the Divisions
issue a bulletin explaining and illustrating the meaning
of the terms used in the regulations, and containing,
among other things, the material included in this report.
I also recommend that this report be designated as the
official interim explanation of the regulations if it does
not prove practicable to issue such a bulletin simulta-
neously with the regulations.

x * 2

Al0l

APPENDIX K

U.S. Department of Labor

Employment Standards Administration
Wage and Hour Division
Washington, D.C. 20210

JUNE 3, 1985

Thomas P. Rebel, Esquire
Fisher & Phillips

3500 First Atlanta Tower
Atlanta, Georgia 30383

Dear Mr. Rebel:

This is in response to your letter of April 2 in which
you request an administrative opinion as to the exempt
status of certain registered nurses employed by a hos-
pital. Your letter states that these nurses have appro-
priate baccalaureate degrees and perform work in the
various patient care wards which is normally performed
by registered nurses in a hospital.

You indicate that the hospital proposes to guarantee each
of these nurses $340 biweekly, except where they are
willfully absent from work or after they have exhausted
their sick leave under the hospital’s sick leave plan. In
any such case you state that the guarantee will be re-
duced by a prorata portion based upon increments of
a day or more in relation to normal days scheduled.
According to your letter, the hospital proposes to pay
these nurses on an hourly basis and to pay an over-
time premium after 80 hours in the biweekly period.
However, you indicate that the hospital will not pay

A102

an overtime premium after 8 hours in a day. Based on
the last paragraph of the first page of your letter, other
than the exceptions mentioned above, the hospital will
ensure that these nurses will receive at least $340 each
biweekly period regardless of the hours they actually
work in such period.

On April 16 and May 1 a member of my staff contacted
you by telephone. In those conversations you indicated
that only full-time registered nurses would be paid on
this guaranteed basis. In the biweekly period the nurses
would generally work over 30 hours in one week and
over 40 hours in the other week. The usual schedule
would be 36 hours in one week and 44 in the other week.
The nurses will be paid wage rates that range from $7
per hour to $13 per hour.

Under this guarantee, you said that if the nurses work
any fraction of an hour for one day of the biweekly
period, they will be paid the $340 guarantee. Any re-
duction of the biweekly guarantee for being “willfully
absent” is intended to conform with section 541.118(a)
(2) of the enclosed Regulations, 29 CFR Part 541. You
said that this meant that deductions may be made when
the employees are absent from work for a day or more
for personal reasons. You also stated that in the initial
and terminal weeks, in accordance with section 541.118
(c), a proportionate part of the guarantee may be paid
for the actual time worked. No deduction will be made,
however, for any day in which the nurses perform any
work.

Section 13(a) (1) of the Fair Labor Standards Act (FLSA)
provides a minimum wage and overtime pay exemption
for any employee employed in a bona fide executive,

A103

administrative, or professional capacity, as those terms
are defined in Regulations, 29 CFR Part 541. An em-
ployee may qualify for exemption as a bona fide pro-
fessional employee if all of the pertinent tests relating
to duties, responsibilities, and salary, as discussed in sec-
tion 541.3 of the regulations, are met.

Registered nurses employed in work comprising the duties
and responsibilities normally involved in the work of
registered nurses in a hospital have traditionally been
recognized by the Wage and Hour Division as bona fide
professional employees where they meet all of the per-
tinent tests relating to duties, responsibilities, and salary,
as discussed in section 541.3 of the regulations. Payment
on a salary or fee basis of not less than $170 per week
currently meets the salary test for exemption.

An employee will not be considered to be “on a salary
basis” if deductions from the predetermined compensa-
tion are made for absences occasioned by the employer
or by the operating requirements of the business. Ac-
cordingly, if the employee is ready, willing, and able to
work, deductions may not be made for times when the
work is not available. Pursuant to section 541.118(a)
(3), deductions from the salary may be made for absences
of a day or more occasioned by sickness or disability
(including industrial accidents) if the deduction is made
in accordance with a bona fide plan, policy, or practice
of providing compensation for loss of salary occasioned
by both sickness and disability. Deductions may not be
made for absences of an employee 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

A104

for a particular week against the salary due for that
particular week without loss of exemption.

Since the nurses in question are guaranteed $340 biweekly,
it is our opinion from the information you provided
that such registered nurses would be considered as paid
“on a salary basis,” and may qualify for exemption as
a bona fide professional employee under FLSA section
13(a) (1) when all of the other tests for exemption con-
tained in section 541.3 are met.

We trust that the above information will be of assistance
to, you.

Sincerely,

/s/ Nancy M. Flynn
for

Herbert J. Cohen

Deputy Administrator

Enclosure

A105

APPENDIX L

U.S. Department of Labor

Employment Standards Administration
Wage and Hour Division
Washington, D.C. 20210

MARCH 27, 1986

John E. Thompson, Esquire
Fisher & Phillips

3500 First Atlanta Tower
Atlanta, Georgia 30381-0101

Dear Mr. Thompson:

This is in further response to your letter of November 20,
1985, with enclosures, in which you request an opinion
as to whether a pay plan proposed by your client would
compensate the affected employees in accordance with
the salary requirement tests contained in section 541.118
of Regulations, 29 CFR Part 541. Your letter states that,
in determining whether the employees in question are
‘paid “on a salary basis” pursuant to section 541.118, we
are to assume that the employees meet all of the other
tests for exemption as bona fide executive employees

under section 13(a)(1) of the Fair Labor Standards Act
_ (FLSA) and 29 CFR Part 541.

In a telephone conversation with a member of my staff
on January 21, you said that the employees in question
would be paid on a predetermined hourly rate basis but
would be guaranteed a base salary of $250 per week for
a 5-day workweek. Except for those deductions for whole
workdays which are in accordance with the salary prin-

A106

ciples of section 541.118, the guaranteed salary of $250
is the minimum amount which would be paid for any
week in which some work is performed. Accordingly,
one-fifth of the minimum weekly guarantee of $250, or
$50. would be the minimum payment for any day in
which work is performed. The employer has an estab-
lished plan for providing the employees with paid sick
leave. Your letter provided the following examples to

illustrate the operation of the proposed pay plan:

(1) Employee A works 42 hours in his usual 9-day
workweek and is assigned an hourly rate of $7.50
per hour. His gross pay would be $315 (42
hours x $7.50)

(2) In another workweek, employee A leaves work
early on 4 days and works a total of 30 hours.
Although his hourly rate would produce $225
(30 hours x $7.50), he would be paid the guar-
antee of $250.

(3) Assume that, in the preceding example, employee
A left work early on 2 days but was also absent
for 2 full days for personal reasons. Neverthe-
less, he managed to work 30 hours in the 3 days.
Although under section 541.118(a)(2) the em-
ployer could pay him $150 (3/5 x $250), he would
receive $225 (30 hours x $7.50) pursuant to the
hourly rate aspect of the pay plan.

(4) In another workweek employee A works 4 hours
on one day and is sick for the remainder of the
week. He had previously exhausted the sick
days allowed by the employer. Although his
hourly pay would be $30, he would be paid $50
(1/5 x $250).

OVE OETA OT OD EMIS INANE WS HON A 0

A107

Section 13(a)(1) of FLSA provides a minimum wage
and overtime pay exemption for any employee employed
in a bona fide executive, administrative, or professional
capacity as those terms are defined in the appropriate
sections of Regulations, 29 CFR Part 541. One require-
ment for exemption is that the employee be paid “on
a salary basis” as discussed in section 541.118.

Section 541.118(a) states that an employee will be con-
sidered to be paid ‘“‘on a salary basis” within the meaning
of the regulations if under the employee’s employment
agreement the employee regularly receives each pay pe-
riod on a weekly, or less frequent basis, a predetermined
amount constituting all or part of the employee’s com-
pensation, which amount is not subject to reduction be-
cause of variations in the quality or quantity of the work
performed. The employee must receive his or her full
salary for any week in which he or she performs any
work without regard to the number of hours worked.

Deductions which may be made from an ernployee’s com-
pensation without affecting the employee’s salary basis
of payment are found in sections 541.118(a) (2), (3),
and (5). Deductions from the salary of an otherwise
exempt employee which would affect the salary basis of
payment are found in sections 541.118(a)(1) and (4).

As stated in section 541.118(a)(2), deductions may be
made from the salary of an exempt employee when the
employee is absent from work for a day or more days
for personal reasons, other than sickness or accident. As
stated in sections 541.118(a) (3), deductions may also be
made for absences of a day or more days occasioned by
sickness or disability if the deductions are made in accor-
dance with a bona fide plan, policy, or practice of pro-
viding compensation for loss of salary occasioned by both

A108

sickness and disability. Thus, if the employer’s partic-
ular plan, policy, or practice provides compensation for
such absences, deductions for absences of a day or more
days may be made before an employee has qualified
under such plan, policy, or practice, and after the em-
ployee has exhausted the leave allowance thereunder.

Where deductions are allowed for a day or more days,
we do not take the position that any particular number
of hours (such as 8 hours) constitutes a day for salary
deduction purposes, as is permitted in section 541.118.
For example, where there is an understanding that the
normal workweek consists of 5 workdays, the deductions
permissible under section 541.118 must be calculated on
the basis of one-fifth of a 5-day workweek. The daily
amount thus computed is applicable regardless of the
number of hours the employee is scheduled to work.

We wish to point out, however, that deductions from
the salary of an otherwise exempt employee for absences
of less than a day’s duration for personal reasons, or
for sickness or disability, would not be in accordance with
sections 541.118(a)(2) and (3). For example, where an
employee works part of a workday but leaves 4 hours
early due to illness and has exhausted his or her appor-
tionment of paid sick leave, the employee would not
qualify for exemption under section 13(a)(1) of FLSA
and 29 CFR Part 541 if the employee’s pay is reduced
for the 4-hour absence.

Where an cccasional deduction that is not permitted by
section 541.118 is made from the salary of an otherwise
exempt employee, the exemption would be lost in that
workweek when the deduction is made. However, if
such deductions are regular and recurring, we would
question whether the employee is actually being paid

A109

“on a salary basis” and the exemption may be denied
in all workweeks in which it is claimed, including those
weeks when no deductions are made.

Although payment on an hourly rate basis generally does
not meet the salary requirement of the regulations, an
employee will be considered as employed “on a salary
basis” if he or she is guaranteed an amount which is
not less than the salary prescribed by the regulations.
Pursuant to sections 541.118(a) and (b), the salary may
consist of a predetermined amount constituting all or
part of the employee’s compensation. Additional com-
pensation besides the salary is not inconsistent with the
salary basis of payment.

Although it would not be appropriate for us to approve
or disapprove of the salary acknowledgement attachment
to your letter, it is our opinion that an employee who
is paid in accordance with the proposed pay plan, as
described in your letter and in the examples contained
in paragraph 2 above, may be considered as paid “on
a salary basis” as discussed in section 541.118 of 29 CFR
Part 541. Such an employee may qualify for exemption
as a bona fide executive employee under section 13(a)
(1) of FLSA if all of the other tests for exemption con-
tained in section 541.1 of the regulations are met.

We trust that the above will be of assistance to you.
We regret that the greatly increased workload experi-
enced by this office did not permit us to respond sooner.

Sincerely,
/s/ Nancy M. Flynn
for

Herbert J. Cohen
Deputy Administrator

Enclosures

Ail0

Law Offices
FISHER & PHILLIPS
(A Partnership Including Professional Corporations )
3500 First Atlanta Tower
Atlanta, Georgia 30383-0101
Telephone (404) 658-9200
Telex 54-2331

November 20, 1985

Mr. Herbert J. Cohen

Acting Administrator

U.S. Department of Labor
Wage and Hour Division

200 Constitution Avenue, N.W.
Washington, D.C. 20210

Re: Request for Opinion
Dear Mr. Cohen:

We hereby request your official opinion as to the
compliance status of the following pay plan under the
Fair Labor Standards Act (“the Act”).

A. DESCRIPTION OF PLAN

This firm represents an employer who utilizes cer-
tain employees whose duties and responsibilities you may
assume qualify them for the executive exemption set
forth in Section 13(a)(1) of the Act.

The Employer wishes to claim that exemption for
these employees and proposes to establish a pay plan
under which these employees would be compensated ac-
cording to a combined hourly-rate-with-guarantee system

Alll

so as to provide the “salary basis” required for that
exemption pursuant to 29 C.F.R. §541.1

Specifically, a predetermined hourly rate well in ex-
cess of the statutory minimum would be assigned to
each employee, and generally the employee’s gross com-
pensation would be computed by multiplying this rate
times his or her hours worked for the pay period. How-
ever, each employee would be guaranteed a salary of at
least $250 a week for any week in which he or she
performs any work, from which deductions would be
made only in accordance with the salary-basis principles
described in the interpretations at 29 C.F.R. §541.118.

The following examples illustrate the operation of
this proposed plan:

(1) Employee A works 42 hours in his usual five-
day week and is assigned an hourly rate of $7.50 per hour.
His gross pay would be (42 hours) x ($7.50) = $315.

(2) In another week, Employee A leaves work early
on four days and works a total of only 30 hours. Al-
though his hourly rate would produce only (30 hours)
x ($7.50) = $225, he would be paid his guarantee of $250.

(3) Assume that, in the prior example, Employee
A left work early on two days but was also absent for
two full days in connection with a personal hunting trip.
Although pursuant to the interpretations the Employer
could permissibly pay Employee A only $250) - (2/5 x
$250) = $150 consistently with the salary-basis prin-
ciples, pursuant to the hourly-based aspect of the pay
plan he would receive (30 hours) x ($7.50) = $225.

(4) Finally, in another week, Employee A works
4 hours on one day and is then sick for the remainder

A112

of the week. Employee A had nreviously exhausted his
sick days allowed by the Employer. Although his hourly
pay would amount to only (4 hours) x ($7.50) = $30,
under the salary-basis principles he would be due ($250)
- (4/5 x $250) = $50.

Thus, his gross pay would be $90.

B. ANALYSIS OF COMPLIANCE STATUS

Based upon our evaluation of the relevant author-
ities, we conclude that this pay plan provides a true
“salary basis” of payment sufficient to satisfy that com-
ponent of the executive exemption.

Initially, the interpretations make it clear that the
salary required for the executive exemption need not
be the exclusive component of an executive employee’s
pay. As those provisions put it, “additional compensa-
tion besides the salary is not inconsistent with the salary
basis of payment.” 29 C.F-.R. $S$541.118(b). Indeed, in
describing a plan closely analogous to that proposed here,
the interpretations state that:

{a]nother type of situation in which the requirement
will be met is that of an employee paid on a daily
or shift basis, if the employment_arrangement™ in-
cludes a provision that the employee will receive
not less than the amount specified in the regulations
in any week in which the employee performs any
work.

Id.

Moreover, a plan such as that proposed here has
been recommended in at least one Administrator’s opin-
ion in the past. In Opinion Letter of the Wage-Hour

A113

Administrator No. 396, CCH Administrative Opinions
730,996.24 (September 23, 1965) (copy enclosed), the Ad-
ministrator referred to the above-cited portions of the
interpretations in stating that:

[t]he salary requirement would be satisfied by a
payment in the prescribed amount which is guaran-
teed to the employee for each week in which he
performs any work. . ., even though this is only a
portion of the compensation paid him for such work
and the total amount continues to be measured by
an hourly or a daily rate.

The facts in that letter indicate that the guarantee re-
quired would, practically speaking, amount to only one
or two days of pay for the employees in question.

We also point out that the plan outlined here is
entirely different from that disapproved in Section 541.118
(b), in which a “guarantee” of $200 is set, but the
arrangement provides tor payment of an additional $50
per week which is subject to deductions on bases other
than those approved in the interpretations. There, it is
readily apparent that the true guarantee is $250, and
that improper deductions from this amount are contem-
plated.

By contrast, the current plan calls for but one, clearly
specified guarantee, reductions in which would occur only
in accordance with the interpretations.

Finally, while we realize that a written memorial
of the pay plan is not required. the Employer proposes
to have each employee sign such a document. A copy
of the proposed plan is enclosed for your approval.

All4

In summary, we ask that you confirm our determina-
tion that the proposed pay method provides a proper
“salary basis” of payment within the meaning of Section
541.1.

Your expeditious reply would be greatly appreciated.
Sincerely,

/s/ John E. Thompson
John E. Thompson
For FISHER & PHILLIPS

JET: dsw

Enclosure

All5

CCH ADMINISTRATIVE OPINIONS {30,996.23
(September 22, 1965)
Opinion Letter of Wage-Hour Administrator.

Opinion Letter No. 395, September 22, 1965.
Fair Labor Standards Act

Exemption for Executive, Administrative and Profes-
sional Employees—Salary Requirement—Employees Com-
pensated at Hourly or Daily Rates—Weekly Guarantee
Agreement.—Highly-paid administrative and professional
employees employed by consulting firms on an irregular
project-by-project basis do not qualify for the executive,
administrative and professional employees exemption of
the Act where their compensations are computed solely
on an hourly or daily basis. However, if the employers
enter into a weekly wage guarantee agreement with their
employees by which each employee is guaranteed that
his weekly payment will not be less than an amount
equal to the amount prescribed in the regulations, the
salary test will be met even though payments under the
agreement are only a portion of the total compensation
of the employee and the compensation continues to be
measured by an hourly or daily rate. FLSA, Section
13(a) (1).

Back reference.—{ 25,210.31.

This is in further reference to your letter with which
you enclosed a copy of an earlier letter concerning the
application of section 13(a)(1) of the Fair Labor Stan-
dards Act to highly-paid administrative and professional
employees employed by consulting firms on an irregular,
project-by-project basis.

You are correct in your conclusion that payment of
an employee solely on an hourly or daily rate basis does

A116

not meet the salary requirement of the regulations and
that an employee hired for a project solely on this basis
would not qualify for exemption even though other re-
quirements of the regulations were met. See Craig v.
Far West Engineering Co., [36 LC { 65,339] 265 F. 2d
251, certiorari denied 361 U. S. 816. However, the reg-
ulations do not require that the predetermined weekly
amount required constitute or govern the employee’s total
weekly compensation. The salary requirement would be
satisfied by a payment in the prescribed amount which
is guaranteed to the employee for each week in which
he performs any work on a project or projects for the
employer, even though this is only a portion of the com-
pensation paid him for such work and the total amount
continues to be measured by an hourly or daily rate.
See 29 CFR 541.118(b).

Your letter indicates that these employees are paid
at rates yielding $75 to $200 for a day’s work of 744 to
8 hours, and $375 to $1,000 or more per week of 35 to
40 hours. In the case of projects for the employer which
involve the potentiality of overtime in excess of 40 hours
work in any workweek (if they don’t, obviously there
is no need for the exemption), the salary test of the
regulations could be met without changing the present
method of computing total compensation, therefore, by
simply guaranteeing the employee when he is employed
for the project that his payment at the agreed rates
in each week when he works on the project will not
be less than an amount equal to the amount prescribed
in the regulations. This would amount to a guarantee
of at most one or two day’s pay on the project in each
week to such employees, and would not seem impractical
for employees hired and paid on the basis outlined in
your letters.

All17

SALARY ACKNOWLEDGMENT

~ a, Oe

I understand that I am paid on a combined salary
and hourly basis.

I am paid at an hourly rate for all my hours worked
in each workweek.

However, I am guaranteed a minimum salary of $250
a week for each week in which I perform any work,
subject to deductions only for one or more days missed
for personal reasons, or for one or more days missed
due to illness or injury before I qualify for sick days
and after I exhaust my sick days.

EMPLOYEE SIGNATURE AND DATE

A118

APPENDIX M

U.S. Department of Labor

Employment Standards Administration
Wage and Hour Division
Washington, D.C. 20210

JANUARY 22, 1988

John E. Thompson, Esquire
Fisher & Phillips

3500 First Atlanta Tower
Atlanta, Georgia 30383-0101

Dear Mr. Thompson:

This is in reference to our letter to you dated March 27,
1986, in which we expressed the view that an employee
who is paid in accordance with a proposed pay plan
described in your letter of November 20, 1985, may be
considered as paid “on a salary basis” within the meaning
of sections 541.1(f) and 541.118 of 29 CFR Part 541. Upon
further review of the facts set forth in your letter and
of the conclusion expressed in ours, we have determined
that our letter expresses an incorrect view, being in-
consistent with the Department’s established interpreta-
tion of section 541.118 of the regulations.

Section 541.118(a) states that an employee will be con-
sidered to be paid “on a salary basis” within the meaning
of the regulations if under the employment agreement
the employee regularly receives each pay period on a
weekly, or less frequent basis, a predetermined amount
constituting all or part of the employee’s compensation,
which amount is not subject to reduction because of

A119

variations in the quality or quantity of the work per-
formed. The employee must receive the full salary for
any week in which any work is performed without regard
to the number of hours worked. Further, section 541.118
(b) states that the test of payment on a salary basis
will not be met if the purported salary is arbitrarily
divided into two parts for the purpose of circumventing
the requirement of payment “on a salary basis.” The
illustration is given of a weekly salary of $200 and an
additional $50 which is made subject to deductions not
permitted under section 541.118(a).

In section 22b03 of the Wage and Hour Field Operations
Handbook (FOH) (copy enclosed), it is stated that an
employee whose salary is computed on an hourly rate
basis will be considered as employed “on a salary basis”
if guaranteed a salary which is at least equal to the salary
prescribed by the regulations, and [only] if there is a
“reasonable relationship between the hourly rate, the
regular or normal working hours, and the amount of the
weekly guarantee.” The FOH provides that the “reason-
able relationship” test will be met “if the weekly guar-
antee is roughly equivalent to the employee’s earnings
at the assigned hourly rate for his normal [workweek ].”

The rule for determining the circumstances under which
a hybrid pay plan consisting in part of an hourly rate
and in part of a weekly guarantee is, accordingly, dif-
ferent from the rule for determining when a hybrid of
a guarantee and a daily or shift based rate will be deemed
to be a “salary basis” plan. The latter rule is set forth
at section 541.118(b) of the regulation, which provides
that “the [salary] requirement will be met ... if the
employment arrangement includes a provision that the
employee will receive not less than the amount specified

A120

in the regulations in any week in which the employee
performs any work.”

As stated in section 541.118(a) (2), deductions may be
made from the salary of an exempt employee when the
employee is absent from work for a day or more days
for personal reasons, other than sickness or accident. As
stated in section 541.118(a) (3), deductions may also be
made for absences of a day or more occasioned by sick-
ness or disability if the deductions are made in accor-
dance with a bona fide plan, policy, or practice of pro-
viding compensation for loss of salary occasioned by both
sickness and disability.

In the example given in your letter, the employee works
42 hours in a usual 5-day workweek at an hourly rate
of $7.50. The gross pay would thus be $315 (42 hours
x $7.50). In another workweek, the employee leaves
work early on 4 days and works a total of 30 hours. In
that week, the employee is paid a “guarantee” of $250
(rather than $225; 30 hours x $7.50). In another work-
week, the employee works 4 hours on one day and is
sick for the remainder of the week. Sick leave days
allowed by the employer had previously been exhausted.
Although the daily pay would be $30 (4 x $7.50), the
employee is paid $50 (1/5 x $250).

Under the plan described in your letter, an employee
paid on an hourly basis is “guaranteed” only $250 per
week, even though earnings at the assigned hourly rate
for a normal workweek would be $315. When sick for
less than a day, and sick leave is exhausted, the em-
ployee is paid only $50 for that day, rather than $63
(1/5 x $315). In effect, deductions are made from the
guarantee required by section 541.118 and section 22b03

Al21

of the FOH, even though the employee is absent for less
than a day. Furthermore, the effect of the plan is to
divide the weekly compensation into two parts, one part
being made subject to improper deductions.

It thus appears that the plan presented in your letter
is not a plan which satisfies the “salary basis” require-
ments of section 541.1(f). Accordingly, our letter to you
dated March 27, 1986, is hereby withdrawn.

Sincerely,

/s/ Paula V. Smith
Paula V. Smith
Administrator

Enclosures

A122

APPENDIX N

EXHIBIT A
U.S. Department of Labor

Employment Standards Administration
Wage and Hour Division
Washington, D.C. 20210

FEBRUARY 19, 1988

Thomas P. Rebel, Esquire
Fisher & Phillips

3500 First Atlanta Tower
Atlanta, Georgia 30383

Dear Mr. Rebel:

On January 22, 1988, we wrote to Mr. John E. Thompson
of your firm and advised him that an earlier letter to
him dated March 27, 1986 contained am incorrect view of
the law. Consequently we advised Mr. Thompson that
the March 27, 1986 letter was withdrawn. A copy of our
January 22, 1968 letter is enclosed.

Your firm has subsequently called our attention to another
letter. which was addressed to you and dated June 3,
1985 (copy enclosed), and which concerns the same issue,
namely whether employees paid an hourly rate may be
considered to be compensated “on a salary basis”, where
the plan includes a guarantee which is equivalent to the
minimum salary needed to qualify for exempt status under
299 C.F.R. Part 541 ($170 per week, in the case of pro-
fessional employees). Without reciting in detail the facts
upon which your June 3, 1985 letter was based, it is clear
that our opinion expressed in that letter is inconsistent

A123

with the Department’s established interpretation of section
541.118 of the regulations for the reasons expressed in
our January 22, 1988 letter.

Accordingly, our letter to you dated June 3, 1985, is hereby
withdrawn.

Sincerely,

/s/ Paula V. Smith
Paula V. Smith
Administrator

Enclosures

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385019_2173%3A0. Public record. Not legal advice.