Can you deduct from an exempt person’s salary for loss, damage, or unauthorized expenses?
All of these deductions would be problematic because the employee is exempt under the FLSA.
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While some state labor codes allow employers to make deductions that are authorized in writing, in advance, by the employee for a lawful purpose, making these deductions upon the salary of an otherwise exempt employee would jeopardize the employee’s exempt status, possibly making him or her eligible for overtime and back pay.
Essentially, the FLSA specifies that in order to be exempt, an employee must be paid on a salary basis, and that the employee must receive his or her full salary each week except in very limited circumstances. Deductions from pay such as those in your three scenarios are not among the limited circumstances for which an employee’s regular salary may be reduced.
For more information on permissible and impermissible deductions from an exempt employee’s salary, please see the topical analysis page on HR.BLR.com.
Though deduction from salary would not be permissible in the situations you describe, there are some affirmative steps that may be appropriate in limiting your losses:
- Discipline. If an employee causes damage or loss because of poor performance, the employee should be subject to discipline in the same manner as employees with other performance issues.
- Termination. In the absence of a collective bargaining agreement or other employment contract, employees can generally be terminated at the will of the employer. Employers should include a provision in their discipline policies reserving the right to impose discipline, up to and including termination, in any situation they deem appropriate. Willful or intentional misuse of company property resulting in significant loss could be grounds for immediate termination.
- Civil Suit. Employers can file a civil suit or make a claim in small claims court to recoup the money owed for the loss or damage.