While the FLSA allows some very specific pay deductions for exempt employees, such as taxes and wage garnishments, it's typically quite strict about the fact that exempt employee pay shouldn't be reduced for exempt employee absences in most cases. It's important for employers to understand when certain payroll deductions may be perfectly legal, and when others may not be under federal law so they can keep their organization in compliance.
Let's take a look at some of the exceptions—some of the rare instances where exempt employee pay can be reduced for absences.
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7 Instances Where Exempt Employee Pay Can be Deducted for Absences
For exempt salaried employees, deductions from salary are generally impermissible for partial-day absences. "The rationale here, is that because a high-level employee, such as a high-level manager, is valued and rewarded for the quality and nature of their labor, instead of the quantity. Therefore, if they were absent for part of a day, they shouldn't be 'punished' if you would, for that." Stephanie T. Yang explained in a recent BLR webinar.
A full-day absence is another story. There are several situations in which a full-day absence can result in a pay deduction for an exempt employee, without violating the rule that such employees must be paid a full week's salary for any week they perform work. Here are some exceptions for full-day absences:
- PTO deductions. Deductions from pay may be made for one or more full days for sickness or disability IF the deduction is made in accordance with a policy or practice such as a PTO or sick time policy. In this situation, the assumption is that the employee will be receiving the PTO or sick pay in lieu of regular pay and will still get their full salary in the end. Basically, this is the same as saying that you're docking the pay (in the form of accrued hours) from their PTO bank, but not from their take-home pay for that week.
- Personal days. Being absent for one or more full days for personal reasons other than sickness or disability (such as being absent for taking care of personal business) is another exception. The employee's exempt status will not be affected if the employer decides to deduct pay for those absences. But this is only true for full day absences. Partial days cannot have pay deducted.
- Jury duty. While the employee still must be paid while on jury duty, the exception is that the employer can reduce the pay by any amount of compensation the employee received for the jury duty.
- Major safety violations. "Deductions from an exempt employee's pay [are] permissible when the particular employee violated a safety rule of major significance." Yang told us. However, she said: "I do want to caution against trying to make deductions based on this exception—because safety rules of major significance do need to be major." In other words, this deduction is allowed, but the employer must be able to show the seriousness of the violation and not use this as an excuse with simple or minor infractions.
- Disciplinary suspensions. Deductions can be made from exempt employee pay for unpaid disciplinary suspensions of one or more full days for major infractions of workplace conduct. But, again, be careful. This should be something within your company policy that can be clearly pointed to. Don't use a pay deduction as a punishment without a policy and a clear delineation of the types of infractions that qualify as a major infraction of workplace conduct.
- First and last week of employment. Pay can be pro-rated, rather than paid at the full weekly rate, for the initial and final week of employment.
- FMLA leave of absence. For full days or weeks taken under the FMLA, if no work was performed in the workweek, then it is generally permissible to deduct pay without risking the exempt status.
For more information on when pay can be deducted for exempt employee absences, order the webinar recording of "Pay Deductions Explained: What You Can and Can't Legally Deduct from Employees' Pay." To register for a future webinar, visit http://store.blr.com/events/webinars.
Stephanie Yang is an associate in the San Francisco office of Lewis, Brisbois, Bisgaard, & Smith LLP. Ms. Yang practices in the firm's Employment and Labor Group, concentrating on the litigation defense of employment matters, including wage and hour, employment discrimination, employment counseling, and wrongful termination.