HR Solutions

By Ruhal Dooley, Dyane Holt and Margaret R. Fiester Aug 1, 2007
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Docking Pay, Company Picnics, Merit Increases

Q: Under the Fair Labor Standards Act, may I dock an employee's pay as a disciplinary penalty?

A: Although it is discouraged by many experts, employers may in some circumstances dock pay to penalize an employee for violating a written policy.

While an employer cannot refuse to pay a nonexempt worker for hours that the employee has worked, the Fair Labor Standards Act (FLSA) does not prohibit employers from reducing a nonexempt worker’s hourly wage rate as a disciplinary action. Therefore, unless there is a union contract or other employment agreement that provides otherwise, under federal law employers are entitled to reduce pay of nonexempt workers, as long as the workers still are paid the minimum wage. Employers may not dock the pay of a minimum-wage earner.

Exempt employees usually are paid salaries, and any reduction to those salaries must comply with the FLSA regulations, or the employees’ exempt status will be jeopardized. Under 29 C.F.R. 541.602, deductions from exempt employees’ pay can be taken for disciplinary suspensions, but they must be made on a full-day basis only.

In addition, the suspension must be imposed as a result of a serious violation of workplace conduct rules, such as engaging in dangerous behavior in the workplace or committing sexual harassment. The Department of Labor excludes suspensions related to performance issues and poor attendance from the definition of “violations of workplace conduct rules.”

Finally, the suspension must be part of a “written policy applicable to all employees.”

Courts interpreting the FLSA rules, however, also have ruled that if an employer routinely makes salary deductions of less than a full week for disciplinary reasons or has a policy that creates a significant likelihood of such deductions, the salary requirement for exempt employees is not satisfied (Auer v. Robbins, 519 U.S. 452 (1997)).

—RD

Q: An employee who has been unable to work because of a serious illness has been taking Family and Medical Leave Act leave. Our company picnic is in two weeks. Should I allow the employee to attend if she wants to? Should I encourage her to attend?

A: If an employee is on leave under the Family and Medical Leave Act (FMLA) for his or her own serious illness, the employee should not be required to attend company-sponsored events. However, the employer may choose to allow workers in this situation to attend company social functions.

The FMLA prevents employees from having to choose between continuing to work and meeting their personal needs. The law helps to ensure that the employee-employer relationship will not be dissolved or damaged while employees attend to their own serious illnesses.

Company-sponsored events are intended to benefit and promote stable workplace relationships. An ill employee should not be pressured to attend such an event. However, if the employee wishes to attend, the employer may feel that it is in the individual’s and the company’s best interests to allow her to participate in office social functions. The employer is not required to permit the employee’s attendance, however.

Language about employee rights and responsibilities during FMLA leave should be included in company policy statements.

—DH

Q: How do I create a salary increase matrix? My company would like to use this for calculating annual merit increases.

A: Before you create a salary increase matrix, you need to know the goal of your merit increase program.

Do you want to make your program more competitive, continue the status quo or hold down salary growth?

Consider using one of the following two approaches for determining salary increases.

The broadband approach. Design a spreadsheet with employee ratings on the left side and one increase amount for each rating.

First, determine the average projected merit increase among employees for the coming year. Next, determine what your overall salary increase budget is. Then review your previous year’s evaluations to determine a rating distribution. Find the center of distribution—the rating with the most employees. Assuming that this represents your average employees, this will be the group that gets the median or average increase.

Then determine the rest of the rating categories (for example, outstanding, above average, below average and unsatisfactory), determine the percentage of total employees in each group, and apply that percentage to your total merit increase number times the overall merit increase target to find the increase distribut ion for each group.

Or you can simply take the center and make an educated guess on the performance distribution so you’d have something like:

  • Performance increase pool amount (total amount available for increases)

  • Ratings

    • Outstanding—5.5 percent to 6 percent

    • Above Average—4.5 percent to 5 percent

    • Average—3.5 percent to 4 percent

    • Below Average—2 percent

    • Unsatisfactory—0 percent

The compa-ratio approach. A compa-ratio identifies where each employee stands in relation to midpoint. For example, employees with a compa-ratio of 0.80 to 0.89 are below the midpoint of their grade. Employees with a compa-ratio of 1.1 to 1.2 are being paid above the grade midpoint. Therefore, their raises will be less. The idea is to provide more internal equity.

On the left side of your spreadsheet, enter the performance level (usually 1 through 5, or outstanding, above average, average, below average and unsatisfactory). Across the top, enter your compa-ratio segments. For example, you could use 0.8 to 0.89; 0.9 to 0.99; 1.0 to 1.09; and 1.1 to 1.2. Then, in the grid below, you would assign your percentage increases.

A very high performer in the 0.8 to 0.89 range would get the highest increase, while a poor performer in the 1.1 to 1.2 range would get the smallest percentage increase.

—MRF

Ruhal Dooley, SPHR, Dyane Holt, SPHR, and Margaret R. Fiester, SPHR, are HR knowledge advisors in the Society for Human Resource Managements Knowledge Center.

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