What happens when a company classifies its employees as salaried, exempt from overtime but then deducts or docks from the employees’ pay for things like sickness, disability, or personal leave? Can this deduction change an exempt employee to a non-exempt employee? The short answer is “yes.” The rule of thumb under the Fair Labor Standards Act (“FLSA”) is that the regulations do not permit an employer to dock pay from a salaried, exempt employee. Doing so, can cause an entire class of employees to suddenly go from exempt to non-exempt and thus, entitled to overtime. As always, however, there are exceptions to the rule.
To understand the discussion on docking an employee’s pay, you have to start with the basics of the FLSA. To qualify for the administrative, executive and professional exemptions under the FLSA, the employer must pay the employees at least $455 per week on a salary or fee basis. An employee is paid on a salary basis if:
- The employer compensates the employee a predetermined amount each pay period on a weekly or less frequent basis, which makes up all or part of the employee’s compensation;
- The amount the employer pays must not be reduced because of variations in the quality or quantity of the work that the employee performs; and
- The employer pays the employee the full salary for any week in which the employee performs any work, without regard to the number of days or hours worked but the employer does not have to pay the employee for any workweek in which the employee performs no work.
So, what happens when an employer deducts pay from an exempt, salaried employee which then reduces their pay “because of variations in the quality or quantity of the work that the employee performs?” The Department of Labor (“DOL”) states:
In no event can deductions from an exempt employee’s salary be made for full or partial absences occasioned by lack of work …. Employers can, however, make deductions for absences from an exempt employee’s leave bank in hourly increments, so long as the employee’s salary is not reduced. If exempt employees receive their full predetermined salary, deductions from a leave bank, whether in full day increments or not, do not affect their exempt status. Opinion Letter, FLSA2009–18, at 9 (Dep’t of Labor Jan. 16, 2009), available at http://www.dol.gov/WHD/opinion/flsa .htm.
Partial Day Absences:
The federal courts have previously found that an employer cannot dock or deduct pay for absences of less than a day. Therefore, if a salaried employee shows up for a few minutes, they get the full day’s pay. An employer may require an employee to use accrued vacation time or other paid time off to cover the partial day’s absence. The DOL will not find a docking of wages where there has been no lessening of the week’s paycheck. However, once the vacation pay or other paid time off is exhausted, the salaried employee must miss the entire day before the employer may dock pay.
Employers may dock or deduct pay when an employee is voluntarily absent from work for a day or more for personal reasons other than sickness or disability.
Unless an employee is sick and/or disabled and out of work for an entire week, an employer cannot deduct from the employee’s wages at all. Therefore, if an employee shows up for a few minutes one day, the employer must pay the employee for the full week unless the employer has a formal written sick leave policy or benefit plan that says otherwise and pays the employees for the days off, e.g. disability plan.
Conclusion: Whether deductions to an exempt, salaried employee can convert the employee to non-exempt and entitled to overtime can be a complex question. If your employer is docking or deducting pay from your salary, contact us for a free consultation.