Can Employers Deduct/Dock Pay From a Salaried Employee?
- Aug 4, 2022
- 5 min read
Updated: Dec 12, 2022
Short Answer: Your employer cannot legally deduct your pay if you work less than 40 hours per week as a salaried/exempt employee. Let's take a look inside the provisions under the Act. FLSA: The Fair Labor Standards Act (FLSA) of 1938 29 U.S.C. § 203 is a United States labor law that establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and Local Governments. All employees fall into one of two categories “Exempt” or “Non-Exempt”. FLSA Exempt: An employee who is exempt from the overtime provisions of the FLSA based on duties performed and the manner of compensation (classified as an executive, professional, administrative or outside sales employee, and meets the specific criteria for the exemption). Certain IT professionals may also be exempt. With some limited exceptions, exempt employees are paid an established monthly or annual salary and are expected to fulfill the duties of their positions regardless of the hours worked. Exempt employees are not entitled to overtime pay and can work less or more than 40 hours during the workweek without limit. FLSA Non-Exempt: The FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at not less than time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek. Nonexempt employees may be paid on a salary, hourly or other basis. Employees who do not meet the requirements to be classified as exempt from the Minimum Wage Act are considered nonexempt. Employees who do not qualify for an exemption but are paid on a salary basis are considered salaried nonexempt.
One of the many provisions under the FLSA that employers often ignore is the one against deducting pay from exempt employees not working 40 hours per week. Exempt employees who arrive late or leave work early for personal reasons (picking up a child from school, taking care of personal business, medical appointments, and other extracurricular activities) are not legally allowed to have their pay deducted for missing a couple of hours of work. The FLSA provision goes even further to protect employees from having their pay deducted even if they only show up to work for a few minutes; employers are required to pay their exempt employees for the entire day even if they leave early.
Reductions in the predetermined salary of an employee who is exempt under Part 541 of the Department of Labor's regulations will ordinarily cause a loss of the exemption. Such an employee must then be paid at least the federal minimum wage and overtime pay required by the FLSA. In some circumstances, however, a prospective reduction in salary may not cause a loss of the exemption.
Being paid on a “salary basis” means an employee regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent, basis. The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work. Subject to exceptions listed below, an exempt employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked. Exempt employees do not need to be paid for any workweek in which they perform no work. If the employer makes deductions from an employee’s predetermined salary, i.e., because of the operating requirements of the business, that employee is not paid on a “salary basis.” If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.
Exception: Deductions from pay are permissible when an exempt employee: is absent from work for one or more full days for personal reasons other than sickness or disability; for absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness; to offset amounts employees receive as jury or witness fees, or for military pay; for penalties imposed in good faith for infractions of safety rules of major significance; or for unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions. Also, an employer is not required to pay the full salary in the initial or terminal week of employment, or for weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act.
Employer Actions: Employers are allowed to force the employee to use PTO/Sick Personal Time to cover the hours missed.
Effect of Improper Deductions from Salary: The employer will lose the exemption if it has an “actual practice” of making improper deductions from salary. Factors to consider when determining whether an employer has an actual practice of making improper deductions include, but are not limited to: the number of improper deductions, particularly as compared to the number of employee infractions warranting deductions; the time period during which the employer made improper deductions; the number and geographic location of both the employees whose salary was improperly reduced and the managers responsible; and whether the employer has a clearly communicated policy permitting or prohibiting improper deductions. If an “actual practice” is found, the exemption is lost during the time period of the deductions for employees in the same job classification working for the same managers responsible for the improper deductions. Isolated or inadvertent improper deductions will not result in loss of the exemption if the employer reimburses the employee for the improper deductions.
Employers may use nondiscretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis, to satisfy up to 10 percent of the standard salary level. Additionally, if after the 52-week period, the employer has not met its financial obligation, the employer can make a final “catch-up” payment within one pay period after the end of the 52-week period to bring an employee’s compensation up to the required level. Any such catch-up payment will count only toward the prior year’s salary amount and not toward the salary amount in the year in which it is paid. For this reason, most employees who are hired under a “task-based” rather than “time-based” arrangement tend to be exempt and salaried. The essence of this approach is to assign employees specific tasks, and require them to put in only as much time as it actually takes to get the work done.
Conclusion: Employers cannot legally dock/deduct your pay if you are a salaried employee and don't regularly meet the 40-hour workweek minimum.
Violation penalties for employers: Employers who willfully or repeatedly violate the minimum wage or overtime pay requirements are subject to a civil money penalty of up to $1,000 for each violation.
Note: It is a violation to fire or in any other manner discriminate against an employee for filing a complaint or for participating in a legal proceeding under FLSA. Willful violations may be prosecuted criminally and the violator fined up to $10,000. A second conviction may result in imprisonment.
https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/fs17g_salary.pdf
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