Deductions from Salaried Exempt Employees

 

To be clear, this tip does not apply to salaried non-exempt employees. Remember, just because someone is paid a salary does not make them exempt from overtime. Usually they also have to meet very specific job duty requirements in order to be classified as exempt.

The general idea of salaried exempt employees is that they are paid a set weekly salary amount regardless of the numbers of hours they actually work.  If an employee is classified as salaried exempt but the employer reduces the employee’s pay for each hour that the employee misses work then that employee is actually an hourly employee and the employer will lose the ability to take the overtime exemption.

Under certain circumstances it is possible for employers to deduct pay from salaried exempt employees.  The following is based on the federal regulations found in the Fair Labor Standards Act.  Employers in certain states (like California) may have to comply with more restrictive regulations.

Absence for personal reasons: The employer may deduct for full day absences, but not anything less than a full day. If the employer grants vacation time or PTO they can use that in accordance with their policy for any increment of hours.

Example 1: Joan does not have any vacation or PTO time.  She is absent for 2.5 days due to personal reasons. The employer can deduct two days’ worth of salary from her pay.  The employer cannot deduct anything for the other half of a day.

Example 2: Craig receives 2 weeks of PTO every year. He currently has 6 days of PTO in his leave balance. He is absent for 2.5 days.  The employer can deduct the 2.5 days of absence from his PTO balance. Or the employer could deduct 2 days from Craig’s salary and a 1/2 day from his PTO balance.

Absence for sick or disability: The employer may deduct for full day absences if they have a bona fide sick leave or disability policy in place. If the policy is in place but the employee is not eligible yet (because of a 90 day start period, etc) then the employer can still deduct for the full day.  Also if the policy is in place but the employee has exhausted all their sick or disability leave then the employer can still deduct for the full day. If the employer has no sick or disability policy then no deductions, full days or otherwise, may be made from an employee’s pay.

Example 1: Barry calls in sick for 2 days. His employer does not have a sick leave policy. His employer must Barry for his entire week’s salary and not deduct any pay.

Example 2: Richard calls in sick for 4 days. His employer has a bona fide sick leave policy.  Richard only has 2 days left of sick leave in his sick leave balance. Richard would be given his 2 days of sick leave and the other 2 days would be deducted from his weekly salary.

*If an employee is taking unpaid leave under FMLA (Family and Medical Leave Act) the number of hours taken under FMLA may be deducted from the weekly salary.

*Also an employer may deduct for full day absences due to sick or disability if the employee is receiving salary replacement benefits through disability insurance or worker’s compensation.

Remember that the regulations only deal with deductions from the actual salary of the employee. If you give your employees PTO you may deduct as many hours from their leave bank for whatever reason, personal/sick, etc. whenever you want.  However, you may NOT recoup partial day deductions from a negative leave balance because that’s essentially the same as deducting it from the salary.

In addition to deductions for personal and sick reasons an employer may deduct the proportionate amount of time not worked in an employee’s first and last week of employment. It is also possible for an employer to deduct time for infractions of safety rules and other disciplinary suspensions but the deductions must meet the exact criteria stated in 29 CFR 541.602(b)(4) and (5).

It is very important to follow the regulations when taking deductions from salaried exempt employees’ pay because if the Department of Labor determines that improper deductions were made they will re-classify all of the affected employees as non-exempt and you will be forced to pay them overtime for the previous two years.

We hope you found this week’s tip helpful and informative. Please pass it along to anyone you think might be at risk as a result of making improper deductions from salaried exempt employees. Follow us on facebook to get the next Tip of the Week on your newsfeed!

Link: http://laborbrain.com/tip-of-the-week-deductions-from-salaried-exempt-employees/

–     By Kalen Fraser

The Labor Brain Inc. is not a law firm and its employees do not practice law or provide legal services.  The information provided on our website,  in email correspondence with representatives of The Labor Brain, and at outreach events is for informational and educational purposes only.  The information provided is not a substitute for the advice of an attorney.