Employers with salaried employees – employees exempt from minimum wage and overtime laws – should take steps to ensure they are complying with federal regulations under the Fair Labor Standards Act (FLSA). Specifically, the employer must actually and continuously compensate such employees on a salary basis, which generally means the employee must receive compensation the employer has agreed to pay without regard to quality or hours worked. Improper deductions can result in the employee losing exempt status and in turn obligating the employer to pay months, if not years, of reimbursements and costly retroactive overtime pay.
The principle of payment by salary is to compensate for the overall nature of the work, not individual work hours. Thus, employers must generally pay salaried employees the amount agreed upon and may not deduct for absences as long as the employee actually works a minimal amount during the day. Even if the employee works as little as five minutes, the employer must provide full compensation. An exception to this rule is that an employer can in most cases withhold pay if an employee misses the entire day for personal reasons other than sickness or disability. Employers may not deduct pay for military service or involvement as a juror or witness in a legal matter (though the employer may offset its pay by any amount the employee receives as a result).
Similarly, as a general rule an employer may not dock pay for absences due to illness, however several major exceptions apply. Primarily, an employer has leeway to dock for such absences so long as it is pursuant to a clearly-written sick leave policy. The employer may deduct pay once the employee exhausts his or her sick leave as determined by the policy. Furthermore, employers may deduct pay for absences covered by the Family and Military Leave Act (FMLA): absences of less than a day for new child care or serious medical conditions. In such cases the employer should take care to ensure the absence falls under the FMLA before docking pay.
The federal and state departments of labor take improper pay deductions very seriously, and any employer found to be in violation of these regulations are subject to strict reimbursement requirements, up to and including multiple years’ worth of retroactive overtime pay. The regulations excuse deductions primarily under three circumstances. One, when an employee violates a workplace safety rule causing serious danger in the workplace; two, for isolated and inadvertent deductions so long as the employee is reimbursed; and three, when the employer has and follows a clearly-written improper deduction policy and a process by which employees can pursue reimbursement.
Employers may wish to consult legal counsel to ensure they are fully complying with the FLSA and FMLA.