The federal Fair Labor Standards Act (FLSA) requires exempt employees to be paid a fixed weekly salary that cannot be reduced based on the quality or quantity of the employee's work. When an employer wishes to make a pay deduction for an employee absence or due to a safety violation, it must ensure that the deduction is allowable under the FLSA. If improper deductions are taken, the exempt status of that employee and others in the same class may be lost and overtime and penalties may be due.
While deductions from pay for items that benefit the employee are allowed (such as health insurance premiums and pension plan contributions), docking pay for absences or safety violations is strictly limited. The FLSA regulations at 29 CFR 541.602 govern when deductions may be made, and the Department of Labor offers guidance in its FLSA E-Law Advisor. State wage deduction laws may further limit pay reductions, so employers will need to check those for additional compliance obligations.
While an employer never has to pay an exempt employee when he or she performs no work in a workweek (regardless of the reason), shorter absences may not allow for pay deductions. The quick-reference chart below provides guidance on allowable and nonallowable salary deductions for exempt employees under the FLSA.
Safe harbor rules
An employer may rectify improper pay deductions without penalty by following the safe harbor rules at 29 CFR 541.603. Employers may protect themselves under the safe harbor provision by:
- Establishing a clearly communicated policy prohibiting improper deductions and including a complaint mechanism.
- Reimbursing employees for any improper deductions in a reasonable time frame.
- Making a good-faith commitment to comply in the future.
Exempt Pay Deductions