When employees take time off of work for doctor’s appointments, we expect them to make up the time. If they don’t, we deduct from their paychecks for the hours they are gone. Some exempt employees have complained about this practice. I thought if they take personal time, we could deduct. Are our deductions legal? What if the time off is for a school visit or just picking up a new car? — Anonymous
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.
I am not surprised that exempt employees have complained. Your deductions are not legal. The practice you describe runs directly counter to the concept behind exempt status and to the regulations that govern how exempt status is determined.
Federal and state law generally require that you pay employees extra dollars for work beyond the normal workday or workweek—what we commonly refer to as overtime. An employee is exempt from overtime only if his or her job fits all of the criteria for one of the recognized exemptions. For the three most common exemptions, the so-called white-collar exemptions for executive, administrative, and professional employees, one of the requirements is that the employee must be paid on a “salary basis.” That means that the employee must regularly receive a predetermined amount of compensation that is not subject to reduction for variations in the quality or quantity of the work performed. The theory is that the exempt employee is paid for his or her skill and for getting the job done rather than for the number of hours worked.
Conceptually, if you are not going to pay the employee extra for extra hours worked, you also should not dock the employee’s pay for minor variations that reduce the hours worked.
Under the Fair Labor Standards Act, an exempt employee must receive his or her full salary for any week in which he or she performs any work without regard to the number of days or hours worked. However, you don’t have to pay an exempt employee for a workweek in which no work is performed.
There is also a short list of deductions that can be made from an exempt employee’s salary without jeopardizing exempt status:
- Full days of absence for personal reasons.
- Full days of absence for sickness or disability, including industrial accidents if the deduction is in accordance with a bona fide plan, policy, or practice that provides some paid sick time.
- Penalties imposed in good faith for infractions of safety rules of major significance, though this exception is not available under California state law.
However, an employee will not be considered to be paid on a salary basis and will not be exempt from overtime if salary deductions are made in any of the following circumstances:
- Absences of less than a full workweek caused by the employer or by the operating requirements of the business.
- Absences of less than a full workweek caused by jury duty, witness duty, or temporary military leave. The employer may offset any amounts received by an employee as jury or witness fees or military pay for a particular week against the regular weekly salary.
- Absences of less than one (1) day for personal reasons, including sickness. However, deductions for partial-day absences can be made from fringe benefit accounts such as vacation and sick leave without jeopardizing exempt status provided that they do not result in a deduction from the weekly salary.
A policy of deducting from exempt employees’ base pay when they are absent for part of a day for sickness or other personal reasons runs directly contrary to the salary basis requirement and will result in the employees not being exempt from the state and federal overtime requirements. This means the employees will be reclassified as nonexempt employees and will be owed premium overtime pay for all hours over 40 worked in a week or, in California, 8 hours in a day.
If exempt status is lost, it not only results in the reclassification of the particular employees whose wages were subject to the deduction, but can also result in the reclassification of all exempt employees in similar positions. For example, in one case 400 professional employees of an environmental engineering consulting firm were found to be entitled to overtime because 24 of them had deductions made for absences of less than a full day which, in the aggregate, amounted to approximately $3,270. In such a case the liability for overtime can easily be hundreds of thousands of dollars.
If you have exempt employees who are not getting their job done because of partial-day absences for personal business or because they are simply taking excessive time off, you can deal with that as a disciplinary problem. If appropriate, you can even terminate an employee for taking more time off during the day than your policy allows.
However, you should never deduct from exempt employees’ pay for partial-day absences. If you do, you risk liability for overtime that can be many times more than the dollars you save in making the deduction.
Thomas N. Makris, Esq., SPHR, is counsel at the Sacramento office of the law firm Pillsbury Winthrop Shaw Pittman.