You probably know that docking the pay of an employee who is exempt from overtime is fraught with risk-the person could lose their exempt status and you could have to begin paying overtime, as well as back overtime for up to three years. And some courts have said that merely having a written policy giving you the right to dock the salary of exempt workers-even if you never enforce it-can have the same drastic consequences. Now, in an important new decision, the U.S. Supreme Court has weighed in on the matter.
Confusion Over Docking
For employees to be exempt from overtime, they must receive a fixed salary and perform certain types of duties.
Plus, except in very specific circumstances, they must get a full week’s salary for each week in which they perform any work, regardless of the number of hours put in or the quality of their work.
The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.
You can sometimes legally dock someone’s salary-such as for taking personal time off (see below). But you usually can’t reduce or dock an exempt employee’s pay as a method of discipline unless they committed a major safety violation. If your policy is to dock for lesser disciplinary infractions, you run the risk of losing exempt status for all workers covered by the policy.
The rules covering docking have always been complicated. But the subject has become even more confusing because of conflicting court decisions. These cases involve employees who argued they were no longer exempt because their employers had a written policy allowing docking for disciplinary violations, even though it was not enforced. (See CEA September 1996.)
Police Officers Claim Overtime Pay
Unfortunately, the new Supreme Court ruling on this issue may cause even more headaches for employers. The case involved a group of police sergeants and a lieutenant employ- ed by the St. Louis Police Department.
The officers sought back overtime, contending they were improperly classified as exempt from overtime because the department’s docking policy stated their pay could be docked for various infractions. And one sergeant who violated a residency rule had his pay docked as an alternative to termination.
The department argued that because its manual didn’t specifically state that it allowed docking of exempt workers, the policy did not violate federal overtime laws.
High Court Upholds Exempt Status
The Supreme Court found the department’s written policy was ambiguous, and therefore did not destroy the officers’ exempt status. However, the court ruled that a policy which permits disciplinary or other reductions in salary will cause employees to lose the overtime exemption if you actually make deductions. This is also true if the wording of the policy makes it likely that docking will occur.
For example, the court noted that if the policy had clearly specified that docking for rule violations applied to exempt employees, their exempt status would have been lost.
But the court also said a single mistake isn’t necessarily fatal. A one-time improper pay deduction, such as docking the sergeant’s pay, doesn’t automatically cancel exempt status.
Steps to Take Now
Although the Supreme Court ruled against the St. Louis officers, it did give the green light to exempt employees to claim they are entitled to overtime if your docking policy isn’t carefully written. The case underscores how important it is for all public and private employers to analyze their policies to make sure there is nothing which suggests that exempt workers will be subject to improper pay deductions.
Here’s what to look for, along with how you may be able to fix an innocent docking mistake:
- State intent to follow the law. It’s a good idea to specifically mention you won’t permit pay deductions or unpaid suspensions that are inconsistent with maintaining exempt status under the overtime laws.
- Spell out when docking is permitted. To make your policy absolutely clear, it helps to mention these common situations when docking an exempt employee’s salary is allowed:
- You can dock for absences of a day or more for personal reasons other than sickness or accident.
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You can dock for absences of a day or more for sickness or disability. But this is true only if you have a plan or policy, such as sick leave, that compensates employees when they’re sick or disabled. If you have such a policy, you’re allowed to dock an exempt worker for sickness or disability that occurs while they’re waiting to qualify for benefits or after they’ve exhausted all available leave.
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You can dock if no work is performed in a week, including when the reason is because of a disciplinary suspension. But you must pay someone who is willing and able to work, but doesn’t because no work is available.
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You can dock for less than a full week for committing a major safety violation-but the law says it has to be very serious and offers the example of smoking in an explosives plant.
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You can dock for time off taken under state and federal family leave laws, even if for less than a full day.
- Avoid making illegal salary deductions. If the person performs any work during a given week, you should not dock under any circumstances for disciplinary infractions, absences of less than one day (except for family leave) or for time an employee takes off for jury or military duty. However, you can offset from someone’s salary the amount they earned from the jury or military duty.
- Correct mistakes quickly. Although not widely known, if you either a) inadvertently make an illegal deduction or b) dock someone’s pay for reasons other than lack of work, you may be able to remedy the situation without putting the employee’s exempt status at risk. You have to reimburse the worker for the improper deduction and promise to comply in the future. Note that this special “amnesty” will not help if you continue to dock illegally.