The rules on when you can legally dock exempt employees’ pay are complex, and it’s easy to make mistakes. For example, if you dock when you shouldn’t, the person could be considered an hourly worker entitled to back overtime. However, under a special federal provision known as the “window of correction” rule, you may be able to correct docking errors before they explode into big overtime claims. But in an important new case involving disciplinary suspensions that could cost a California employer an astounding $7 million in retroactive overtime pay, the court limited the window of correction rule to only certain kinds of docking mistakes.
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.
Exempt Employees Demand Overtime
A group of exempt managers and registered nurses employed by Santa Clara County sued for back overtime. They claimed they were improperly classified as exempt because a county ordinance permitted disciplinary suspensions for any employee, whether exempt or nonexempt. Over a six-year period, the county had suspended 53 exempt workers without pay for periods of less than a full week. The employees in the case, some of whom had themselves never been suspended, said both the policy and the suspensions were illegal because exempt employees are usually entitled to their full salary if they perform any work in a given week. The county argued that it wasn’t liable for back overtime because it complied with the window of correction rule allowing employers to avoid penalties for docking errors by reimbursing the affected employees and promising to comply with the law. The county had revised its policy so that exempt employees were no longer subject to disciplinary suspensions of less than a week and had paid the improperly suspended workers for their lost wages.
No Amnesty For Employer
The Ninth Circuit Court of Appeal, which covers California, however, ruled that the window of correction rule could only be used to correct inadvertent or isolated intentional violations – not illegal docking policies such as the county’s. The court also said the county’s policy showed that it didn’t intend to pay exempt workers on a salary basis. The court concluded that by suspending exempt employees for less than a week and docking their pay, the county had treated them as hourly workers. Consequently, it was required to pay back overtime – which it estimated could reach $7 million – plus attorneys’ fees.
Steps To Take
Here are some practical tips to help ensure that employees don’t lose their exempt status through docking errors:
- Review your disciplinary policies. Spell out when you will dock an employee’s salary, such as when they are absent for a day or more for personal reasons. But state that you will not dock wages or impose unpaid suspensions that are inconsistent with maintaining an employee’s exempt status.
- Avoid illegal salary deductions. If an exempt employee performs any work in a week, it’s unlawful to dock for the following: a) disciplinary infractions; b) absences of less than a day (except for family leave); or c) time off for jury or military duty.
- Correct mistakes quickly. If you inadvertently make an illegal deduction from an employee’s salary, use the window of correction by promptly reimbursing the person and promising to comply with the docking rules in the future.
Note that the correction rule won’t help if you dock an employee for less than a week because of lack of work, continue to dock illegally or, as in the Santa Clara County case, have or had a policy permitting unlawful docking.