HR Management & Compliance

Exempt Employees: No Salary Docking for Damaged Company Equipment






Suppose one of your
managers carelessly breaks his company-issued cell phone. Can you deduct the
cost of replacing the phone from the manager’s salary or require him to
reimburse you out of pocket for the expense? According to a new U.S. Department
of Labor (DOL) opinion letter,
1 deductions for lost or damaged equipment—such as a cell phone,
laptop, or company car—would strip a manager of his or her overtime exemption
status. We’ll explain.

 


Join us this fall in San Francisco for the California Employment Law Update conference, a 3-day event that will teach you everything you need to know about new laws and regulations, and your compliance obligations, for the year ahead—it’s one-stop shopping at its best.


 

Damage to
Company-Provided Equipment

The DOL’s opinion
responds to an inquiry from an employer that wanted to impose a fine on exempt white-collar
employees who damaged equipment used in performing their jobs, such as cell
phones and laptop computers. The employer asked whether the employees’ exempt
status would be jeopardized if the fine were imposed as a salary deduction for
the replacement or repair cost or by asking the employee to pay for the damage
out of pocket.

 

Deductions Violate
Salary Basis Rule

To qualify for overtime
exemption under the Fair Labor Standards Act (FLSA), the DOL explained, an employee
must generally be paid a salary of at least $455 per week, and the salary can’t
be reduced because of variations in the quality or quantity of work. This is
known as the salary basis rule. The law sets out exceptions to the prohibition
on salary deductions, but none of them address charging employees a fine for
damage or loss of company equipment.

 

Thus, the DOL concluded,
deductions from the salaries of exempt employees for the loss, damage, or destruction
of the employer’s property or funds or requiring them to reimburse you out of
pocket violates the salary basis rule and destroys the overtime exemption. The
DOL noted that such deductions or reimbursements are barred even if an exempt

employee has signed an agreement in advance authorizing them.

 

Result in California?

The result under California law would
probably be the same. California
similarly requires a predetermined salary that can’t be reduced because of
variations in the quantity or quality of work. (The required salary is currently
$2,340 per month, or two times the current minimum wage of $6.75 per hour.)

 

Note, however, that California probably
permits such deductions from bonuses. Several years ago, a California appeals court found that an
employer could reduce an exempt manager’s bonus, based on cash or merchandise
shortages.

 

Different Rules for
Nonexempt Workers

Turning to nonexempt
employees, the DOL said that an employer cannot require a nonexempt employee to
pay for an expense of the employer’s business—such as employer-issued tools and
equipment—if the deduction or reimbursement reduces the employee’s pay below the
minimum wage or required overtime premium. Also, note that under the state wage
orders, you can’t deduct for losses due to cash shortages, breakages, or lost
equipment unless caused by an employee’s  dishonesty, willful act, or gross
negligence—as opposed to a simple mistake.

 

Practical Tips

Many employers have
employees sign equipment return forms, which specify the tools or equipment issued
to an employee and authorize deductions from pay if the equipment isn’t
returned in good condition. Although you may want to continue to use such forms
as a way to promote the return of equipment in proper condition, be sure the
forms given to exempt employees no longer indicate that a salary deduction could
be made.

 

And note that the
penalties for an improper deduction are severe: not only would you have to
repay the deducted amount, but the employee would likely lose his or her
overtime exemption. This means you could be on the hook for back overtime and
penalties, plus attorney’s fees.

 

_

1 U.S. Dept. of Labor Opinion
FLSA2006-7

 

Leave a Reply

Your email address will not be published. Required fields are marked *