Docking exempt employees’ pay: When it’s OK and when it isn’t

This article, by by October 15, 2013, appeared in HR Benefits Alert.

 

The pay-docking rules under the FLSA are a constant headache for employers – especially when it comes to exempt employees. That’s because (surprise, surprise) the rules are hard for anyone without a law school degree to interpret. But this should help ease some of the pain.

A general rule under the FLSA:

An employer may not make deductions from an exempt employee’s pay for absences caused by the employer or by the operating requirements of the business. If the exempt employee is ready, willing and able to work, deductions from the exempt employee’s pay may not be made when no work is available.

That rule does, however, leave some wiggle room for employers to make deductions from exempt employees pay.

Permitted deductions

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

  • They perform no work during a workweek
  • They’re absent for a day due to personal reasons that aren’t related to a sickness or an accident — but these deductions may only be made in full-day increments, so they had to have missed at least a full day
  • They’ve exhausted their bank of paid leave time and are absent due to a sickness or disability
  • They’re suspended for violating workplace conduct rules via actions such as engaging in dangerous behavior or committing sexual harassment (Note: The DOL says reductions in pay can’t be made for suspensions that were the result of performance issues and poor attendance.)
  • They miss work to participate in jury duty, act as a witness or serve in the military and are paid for those activities, and their employer is docking their pay in an amount equal to what they were paid for those activities
  • They work a partial week during the initial or final weeks of employment, and
  • They work a reduced or intermittent work schedule under the Family Medical Leave Act (FMLA). (Note: This is allowed because you can convert an exempt employee to a non-exempt hourly employee during the time he or she is on intermittent or reduced-workweek FMLA leave.)

Improper deductions

On the flip side, here are some deductions that will result in employees losing their exempt status:

  • Pay or paid time off is deducted for absences related to business trips, and
  • Pay is deducted because business is slow and there’s a lack of work to be done — and the employee is ready willing and able to work.

So what happens if your company accidentally makes an improper deduction? Nothing, as long as it’s an isolated incident and gets corrected immediately.

But repeat violations, and those that go uncorrected, can turn entire departments of exempt workers into overtime-eligible employees — ones who may in some cases be entitled to a windfall of back OT payments.

A previous version of this article appeared on our sister website HRMorning.com.