A&R Insight: Allowed Deductions from an Exempt Employee’s Salary

The Fair Labor Standards Act (FLSA) strictly limits deductions from an exempt employee’s salary. When Congress enacted the FLSA, it created an exemption from the minimum wage and overtime pay requirements for “any employee employed in a bona fide executive, administrative, or professional capacity or in the capacity of outside salesman.”

To qualify for an exemption, an employee must meet specific duties tests and, in most cases, minimum compensation requirements.

Exempt employees are paid on a “salaried basis,” meaning they receive the same salary week to week, paycheck to paycheck. Salary deductions are only permissible in a few situations.

As a general rule if the exempt employee performs any work during the workweek, he or she must be paid the full salary amount.

An employer may not make deductions from an exempt employee’s pay for absences caused by the employer or by the operating requirements of the business. If the exempt employee is ready, willing and able to work, an employer cannot make deductions from the exempt employee’s pay when no work is available.

Exempt pay deductions may only be made for the following reasons:

  • Full day out sick if employer has sick leave plan and sick leave is exhausted or not yet accrued (exception to full day if on FMLA)
  • First and last week exception
  • Full day for personal reasons
  • Full day suspension for violating major policy
  • Entire week where there is no work performed by employee (no response to voicemails or emails)

Deductions can be made, however, from bonuses, commissions and accrued unused vacation as long as the promised salary is not reduced. It is recommended that acknowledgements are signed by exempt employees stating that monies can be recouped by making deductions from bonuses, commissions and accrued unused vacation.

Q. I understand that you are permitted to make deductions during the employee’s termination week. Does the last week exception mean that employers can make deductions from an exempt employee’s salary to cover for company equipment not turned in, repayment of advanced vacation, monies advanced toward relocation expenses or educational reimbursements?

A. No; The last week exception means simply if the exempt employee does not work a full week on the last week of employment, you are only required to pay for the actual days worked. If the employee only works Monday – Wednesday on his/her last week for employment, you are only required to pay for those three days. The same principle goes for the first week.

In certain cases, vacation advances, pay advances or tuition costs will allow reimbursement; however, this type of deduction requires a carefully worded agreement drafted and signed at the time of the advance.

In terms of equipment, there is no way to recoup this from an exempt employee. However, employees can be informed that if equipment is not returned, the company will file charges with law enforcement authorities.

Q. If an exempt employee has exhausted vacation/PTO or has not yet accrued such, can the employer deduct a full day if the employee wants to take the day off? What if the exempt has vacation/PTO available – can they take a day without pay and bank vacation/PTO for future use?

A. Yes; the FLSA allows employers to deduct for personal days off as long as they are full days. Allowing an employee to bank vacation/PTO for future use is an organization’s decision. Exempt employees may also have pay deductions for sick time off in increments of a full week, or in increments of a full day when the employee is in the waiting period for a bona fide sick plan (PTO often counts) or has exhausted that time. Often, when an exempt staff is out for a partial day, companies have a policy in place which requires PTO use for time off of 4 hours or more. The PTO pay makes the pay full for the day so no pay deduction is made.

Q. Can employers suspend exempt employees without pay for at least a full day due to poor performance and poor attendance issues?

A. Quality and quantity of work or poor attendance are not considered violations of major policies. Employers are allowed, however, for a full day or more for violations of a major safety rule; violations of a company’s sexual harassment or workplace violence polices are examples of major policies. So, if an exempt employee is sent home mid-day Monday and is suspended through Friday of the same week, the exempt must be paid for Monday but do not need to be paid for Tuesday through Friday.

Q. What are some examples of an exempt employee going an entire week in which no work is performed?

A. One example is when an employer is going through tough economic times and furloughs some exempt employees for an entire week. Exempt employees on furlough are not to perform any work during that week including no work using electronic devices.

Another example is when an organization decides to shut down for an entire week due to inclement weather. Again, employees are not to perform any work including the use of electronic devices.

Written by a Catapult HR Advisor