Exempt employees, who are typically classified as such under the Fair Labor Standards Act (FLSA), are generally not eligible for overtime pay and must be paid a fixed salary. This article explores the circumstances under which deductions can be made from exempt employees’ salaries, drawing upon information from the U.S. Department of Labor’s elaws website (https://webapps.dol.gov/elaws/whd/flsa/overtime/cr9.htm and https://webapps.dol.gov/elaws/whd/flsa/overtime/cr4.htm) and the Society for Human Resource Management (SHRM) (https://www.shrm.org/topics-tools/tools/hr-answers/can-deductions-made-exempt-employees-salary).
Key Facts
- Exempt employees: Salaried employees who are classified as exempt under the Fair Labor Standards Act (FLSA) are generally not eligible for overtime pay and must be paid a fixed salary.
- No deductions for absences caused by the employer: An employer cannot make deductions from an exempt employee’s pay for absences caused by the employer or by the operating requirements of the business.
- Deductions for partial day absences: Deductions for partial day absences generally violate the salary basis rule, except for certain circumstances such as the first or final week of employment or unpaid leave under the Family and Medical Leave Act.
- Improper deductions: Improper deductions from an exempt employee’s pay may result in the loss of their exempt status and may require the employer to pay overtime and penalties.
- Safe harbor rules: Employers can rectify improper pay deductions without penalty by establishing a clearly communicated policy prohibiting improper deductions, reimbursing employees for any improper deductions, and making a good-faith commitment to comply in the future.
Allowable Deductions
In general, employers are permitted to make deductions from exempt employees’ salaries in certain situations. These include:
- Personal DaysFull-day deductions for personal days are allowed.
- Family and Medical Leave Act (FMLA) LeaveFull-day deductions are allowed for FMLA leave.
- Sickness or Disability with a Bona Fide Leave PlanFull-day deductions are allowed if the employer has a bona fide paid-leave plan in place and the employee has not yet qualified for the plan or has exhausted their leave.
- Disciplinary SuspensionsDeductions may be made for disciplinary suspensions of one or more full days for workplace conduct rule infractions, provided there is a written policy applicable to all exempt employees.
- Major Safety ViolationsDeductions may be made in any amount for major safety violations.
- Initial or Terminal Week of EmploymentWhen an employee works less than a full week in the first or last week of employment, paying a portion of the employee’s full salary for the days/hours actually worked is allowable.
- Unpaid Leave Under the Family and Medical Leave ActDeductions are allowed for unpaid leave taken under the Family and Medical Leave Act.
Prohibited Deductions
There are several instances where deductions from exempt employees’ salaries are prohibited. These include:
- Partial Day AbsencesDeductions for partial-day absences are generally not allowed, except in the first or final week of employment or for unpaid leave under the Family and Medical Leave Act.
- Sickness or Disability Without a Bona Fide Leave PlanDeductions for sick or disability absences are not allowed unless the employer has a bona fide leave plan in place.
- Poor Job PerformanceDeductions for poor job performance are not allowed.
- Jury or Witness Duty or Temporary Military DutyDeductions for jury or witness duty or temporary military duty are not allowed, unless the absence is for a full workweek.
- Business ClosuresDeductions for business closures due to weather, emergencies, or lack of work are not allowed if the employee is available and ready to work.
Consequences of Improper Deductions
Making improper deductions from exempt employees’ salaries can have serious consequences. These may include:
- Loss of Exempt StatusImproper deductions may result in the loss of exempt status for the affected employees, making them eligible for overtime pay.
- Overtime and PenaltiesEmployers may be required to pay overtime and penalties to employees who have been improperly classified as exempt.
Safe Harbor Rules
Employers can rectify improper pay deductions without penalty by following the safe harbor rules established by the Department of Labor. These rules require employers to:
- Establish a clearly communicated policy prohibiting improper deductions and including a complaint mechanism.
- Reimburse employees for any improper deductions in a reasonable time frame.
- Make a good-faith commitment to comply in the future.
Conclusion
Deductions from exempt employees’ salaries are strictly regulated under the FLSA. Employers must be cautious to avoid making improper deductions, as this can lead to the loss of exempt status for affected employees and potential liability for overtime and penalties. By following the guidelines outlined in this article and adhering to the safe harbor rules, employers can ensure compliance with the law and protect their exempt employees’ rights.
References
- U.S. Department of Labor: elaws – FLSA Overtime Security Advisor (https://webapps.dol.gov/elaws/whd/flsa/overtime/cr9.htm)
- U.S. Department of Labor: elaws – FLSA Overtime Security Advisor (https://webapps.dol.gov/elaws/whd/flsa/overtime/cr4.htm)
- SHRM: Can Deductions be Made from Exempt Employees’ Salary? (https://www.shrm.org/topics-tools/tools/hr-answers/can-deductions-made-exempt-employees-salary)
FAQs
Can employers deduct pay from salaried employees for sick days?
In general, no. Employers cannot make deductions from an exempt employee’s pay for absences caused by the employer or by the operating requirements of the business. This includes sick days.