Some Deductions for Salaried Staff Are Permitted

Exceptions to salary-basis rule are narrow

Allen Smith, J.D. By Allen Smith, J.D. December 26, 2017

White-collar employees subject to the salary-basis test under the Fair Labor Standards Act (FLSA) are exempt employees who, in general, must be paid their full salary for any week in which they do any work, regardless of how few or how many hours they work. But there are several exceptions to the requirement under the 2004 FLSA regulations, which remain in force now that the 2016 overtime regulations have been put on hold.

Absences Due to Personal Reasons

Employers may deduct from an exempt employee's pay when an employee is absent from work for one or more full days for personal reasons other than sickness or disability, noted Steven Suflas, an attorney with Ballard Spahr in Cherry Hill, N.J., and Denver, and Shaina Hicks, an attorney with Ballard Spahr in Philadelphia. For example, if an exempt employee is absent for one and a half days for personal reasons, an employer is permitted to deduct only for the one full-day absence.

Personal reasons may include attending an event for an organization in which the employee participates, attending a child's school or extracurricular event, or choosing not to commute to work due to inclement weather even though the employer is open, they wrote in an e-mail to SHRM Online.

The absence can be for any reason related to the personal needs of the employee, such as care for a child when there is an unexpected school closing, said Camille Olson, an attorney with Seyfarth Shaw in Chicago and Los Angeles.

Other examples of personal reasons include taking a vacation, preparing a Thanksgiving meal or closing on a house, said Robert Boonin, an attorney with Dykema in Ann Arbor, Mich., and Detroit.

When a business is closed due to inclement weather, a holiday, a power outage or a water main break, exempt employees must be paid if they worked during any other part of that workweek, he noted. "For this reason, rules commonly applied to hourly employees requiring them to work the day before or after a holiday in order to be paid for the holiday cannot apply to salaried exempt employees," he said.

Sickness or Disability

Employers may deduct for full-day absences due to sickness or disability in accordance with a bona fide plan of providing compensation for loss of salary caused by the impairment.

The U.S. Department of Labor has not indicated what constitutes a bona fide sick-day policy. Olson recommends that employers use a policy that allows for at least six sick days per year.

Deductions for such full-day absences may be made in advance, even before an employee has qualified under the sickness or disability plan, as well as after the worker has exhausted the leave under the plan, Suflas and Hicks wrote.

Accrued-Leave Accounts

Full- or partial-day deductions are permitted from exempt employees' leave accounts (not salaries) to cover absences. Specifically, if an employer has a plan that grants sick leave, vacation leave or personal time off, it may reduce the accrued leave for the time an employee is absent, whether the absence is a partial day or a full day, as long as the employee receives his or her salary, Suflas and Hicks noted.

Olson advised against hour-for-hour use of benefit time for exempt employees because this method may be considered inconsistent with treatment on a salaried status. "Half- and full-day deductions are appropriate," she said.

Boonin cautioned that state laws may prohibit docking various types of leave banks for partial days because some states deem the days in the banks as forms of pay instead of benefits.

Safety Rules

Full- or partial-day deductions for violating safety rules of major significance are allowed. There's no real test as to what is significant, but Boonin gave examples of smoking in a prohibited, dangerous area; fooling around with safety switches; or violating lockout/tagout procedures.

"An employer can define what is meant by 'safety violation of major significance,' " Olson said. "Examples include conduct endangering fellow employees, the employee him or herself, or employer property."

Disciplinary Suspensions

Deductions may be made for unpaid disciplinary suspensions of one or more full days for infractions of workplace conduct rules, as long as there is a written policy applicable to all employees and the discipline is unrelated to performance or attendance, Suflas and Hicks noted. For example, an employer might suspend an exempt employee without pay for full days for violating a policy prohibiting sexual harassment or workplace violence.

[SHRM members-only HR Q&A: Under the FLSA, may I dock an employee's pay as a disciplinary penalty?]

Proceed with Caution

"The deductions intentionally are narrowly tailored to discourage employers from making deductions from an exempt employee's pay," Suflas and Hicks cautioned. "To that end, employers must be sure that all requirements are met prior to making one of these deductions."

Boonin said every employer should publish a safe harbor policy that advises exempt employees as to when deductions may be made and that sets out a complaint procedure for bringing to the employer's attention deductions that were made incorrectly.

"Without such a policy, if a payroll mistake is made, then it is possible for that employee and everyone else working in the area subject to the practice to lose their exempt status and expose the employer to overtime liability," he noted.


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