Docking pay for exempt employees: What’s allowed?

If your payroll people have trouble understanding the pay-docking rules laid out by the Fair Labor Standards Act (FLSA), assure them they’ve got a lot of company. The regs are pretty murky.  

As a  general rule, FLSA doesn’t permit deductions from exempt employees. The regs state that the amount of money a salaried employee earns can’t be dependent on the number of days or hours he or she works. You also can’t deduct money based on the quantity or quality of work the employee produces.

But – no surprise here – there are several exceptions. What happens if your company accidentally makes an improper deduction? Nothing, so long as it’s an isolated incident and the company corrects it. But if there are repeat violations, entire departments of exempt workers can suddenly transform into OT-eligible ones by the magical powers of FLSA.

Permitted and prohibited deductions

Here’s a rundown of the situations in which you can dock exempt employees pay, courtesy of TrackSmart:

• Exempt employees do not need to be paid for any workweek in which they perform no work.
• Exempt employees who are absent for a day or more for personal reasons other than sickness or accident. (Note that these deductions must be made only in full-day increments – not for partial-day absences.)
• Exempt employee absences of a day or more caused by sickness or disability, if the company maintains a plan that provides compensation for loss of salary caused by sickness and disability and the employee exhausted his or her “bank” of leave.
• Penalties imposed for violation of safety rules of major significance
• To offset any amounts received by an employee as jury or witness fees or military pay; however, beyond those offsets, deductions may not be made for absences caused by employee jury duty, attendance as a witness or temporary military leave.
• Unpaid disciplinary suspensions of one or more full days for breaking workplace conduct rules.
• Partial weeks worked during the initial or final weeks of employment. For example, if Joe resigns in the middle of a workweek, pay him only for the days actually worked in that week.
• In some cases, when a salaried/exempt employee has worked a reduced or intermittent work schedule under the Family and Medical Leave Act (FMLA). (You can convert a salaried employee to an hourly rate during the time he or she is on intermittent or reduced-workweek FMLA leave without destroying the person’s exempt status.)

Red flags

On the flip side, the following deductions are FLSA red flags. These deductions can make a formerly exempt employee eligible to collect overtime:

• Business trips. You can’t deduct salary (or run the clock on paid time off benefits) for absences related to business trips, and

• Lack of work. If an exempt employee is ready, willing and able to work, you can’t deduct money for slow times when there’s little or no work assigned.