Exempt Employees: Labor Commissioner Won’t Follow Federal Docking Rules, Issues Strict New California Standard

Under federal wage and hour law, employees must be paid a predetermined salary to qualify as exempt from overtime. And there are strict guidelines on when salary docking can jeopardize exempt status. When overhauling state wage and hour laws in 2000 with the passage of A.B. 60, California for the first time adopted similar salary provisions for exempt employees. And it appeared that the state would rely on federal guidelines for determining when docking is and isn’t permissible.

But in a startling new opinion, the California Labor Commissioner has announced that California won’t blindly follow the federal salary basis rules. The opinion sets out a host of stricter standards for determining when docking and other practices will destroy an employee’s exempt status.

New State Docking Guidelines

Here are the opinion’s key provisions:

1. No work performed in a month. Exempt employees must receive a predetermined monthly salary that is at least two times the California minimum wage. With the exceptions set out below, an exempt employee must receive the full salary for any month in which the employee performs any work, without regard to the number of days or hours worked. This is a stark departure from federal rules, which provide generally that you have to pay an exempt worker’s full salary if they perform any work in a week but not for a week when no work is performed.

    

2. No work available. If the employee is ready, able and willing to work, you can’t deduct for times when work isn’t available during a particular month. And you can’t force employees to use their vested vacation to substitute for their salary in this situation. However, Miles Locker, chief counsel of the Division of Labor Standards Enforcement, has unofficially stated that you can occasionally dock when there’s no work for a portion of a month if you treat the exempt worker as nonexempt by paying overtime and keeping track of hours worked. The following month, when work is available, the employee could revert to exempt status. But if you shift classifications more than once, you risk losing the worker’s exempt status permanently because it could appear that you never intended to treat the person as exempt.

    

3. Absences of a day or more for personal reasons. Deductions are permitted if an employee is absent for personal reasons, other than sickness or accident, for more than one day.

    

4. Partial-day absences. Docking for absences of less than one day is prohibited. And you can’t dock an exempt worker’s accrued vacation time to make up for a partial-day absence. This is true despite a recent Ninth Circuit Court of Appeals ruling that federal law permits docking paid leave time for partial-day absences.

    

5. Sickness and disability. No deductions may be made for absences caused by sickness or accident unless the absence exceeds the monthly period. You can deduct for absences of a working day or more only if the employee has exhausted your sick leave or other plan that compensates employees for their full salary. You can’t dock if the plan only pays partial salary benefits, a requirement not found in the federal rules.

    

6. Jury duty, attendance as a witness and military leave. You can’t dock when someone is absent for jury duty, attendance as a witness or temporary military leave. If the employee performs no work in the month, however, the employee need not be paid.

    

7. Safety violations. Docking for violations of major safety rules is prohibited, even though federal rules permit it.

    

8. Family leave. You can require an exempt employee to substitute accrued vacation for family and medical leave. In an unofficial statement subsequent to the recent opinion, DLSE counsel Locker also suggested that California may permit salary docking for partial-day family leave absences, but you should check with your counsel because this issue is not yet resolved.

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.

What To Do Now

The Labor Commissioner’s opinion probably won’t be the last word on how California’s exempt employee salary rules should be interpreted. A court could construe the state rules differently. And Sacramento lawmakers could introduce legislation that would clear up the confusion over whether the state provisions are intended to mirror federal guidelines. Plus, the Labor Commissioner is expected to issue further opinions that may resolve some unanswered questions.

Until the California rules are clarified, here’s what you can do to avoid problems:

1. Review your policies. Employment attorney Alisa Wynd of Miller Law Group in Larkspur recommends that you make sure employment policies—such as vacation, leave, discipline and jury duty provisions—don’t contain language that conflicts with the new salary and docking guidelines.

    

2. Offer paid sick leave. The opinion suggests that as long as you provide exempt workers with full salary replacement for at least some period of time, once that leave is exhausted you can legally dock for time off for illness. According to Locker, paid-time-off plans, or PTOs, that combine paid time off for sickness and vacation leave would probably qualify as sick leave plans for this purpose.

    

3. Don’t force exempt workers to take vacation.You can’t require exempt employees to substitute accrued vacation for their salary when no work is available. This is true even if you’re closing operations temporarily as a cost-cutting measure. However, you can require exempt employees to take vacation during a particular period of the year if you have clearly articulated this requirement in advance in your vacation policy.

    

4. Carefully consider classifications. Wynd says it may sometimes be better to classify as nonexempt an employee who qualifies as exempt. If the person rarely works overtime, it may cost less to treat the worker as nonexempt than to pay the employee’s full monthly salary if they work just a day or two that month.

    

5. Correct mistakes. If you inadvertently or erroneously make an illegal deduction, the employee’s exemption won’t be lost as long as you reimburse the person for the improper deduction and promise, in writing, to comply in the future.