Le Knapp: Pay Docking Salaried Employees

Docking the pay of exempt employees is only permissible in certain circumstances. The Fair Labor Standards Act (FLSA) governs wage and hour laws of nonexempt employees. The law requires employers to pay nonexempt employees at least the federal minimum wage and requires the payment of overtime for an employee who works more than 40 hours in a week. Employees who are exempt from the law are not entitled to overtime or the federal minimum wage, but employers may not make improper pay deductions from their salary.

Exempt Employees Under FLSA

The FLSA does not apply to certain types of workers, including executives, administrators, professionals, outside sales people, and some computer employees. To be exempt, the employee must meet certain requirements regarding job duties and — excluding outside sales employees and teachers — must be paid on a salary basis. Exempt employees must receive a salary of at least $455 per week. An exempt computer employee must receive a salary of $455 per week or at least $27.63 per hour.

Impermissible Pay Docking

In order for an employee to qualify as exempt, the employee must receive a predetermined wage each pay period. The law prohibits the employer from docking the pay of an exempt employee because of the “quality or quantity” of the work. This means that an exempt employee must receive a full weekly salary when any work is performed during the week (the number of hours or days worked is immaterial) and when work is unavailable but the employee is ready, available, and able to work.

The FLSA allows employers to make deductions of an exempt employee’s salary under certain circumstances, including:
• When the employee is absent for one or more full days for personal reasons
• When the employee is absent for one or more full days for sickness or disability if the employer has a plan that compensates the employee for lost salary
• To offset the amount the employee receives from jury service, witness fees, or for military pay
• To impose a penalty in good faith for the violation of safety rules of major significance
• For unpaid disciplinary suspensions of one or more full days imposed in good faith for infractions of workplace rules of conduct
• For unpaid leave under the Family and Medical Leave Act
• During the first or last week of employment if the employee does not work a full week.

Penalties for Impermissible Pay Docking

An employer that engages in the “actual practice” of improper pay docking is subject to penalties if it is established that the employer did not intend to pay the employee on a salary basis. The court will consider several factors when making this determination, including:
• The number of improper deductions
• The time period the improper deductions were made
• The number and the location of both the employees subject to the improper deductions and the managers responsible
• Whether the employer clearly explained its policy on permissible and impermissible deductions
An employer that engages in the actual practice of improper pay docking will lose the overtime exemption for the period the docking occurred for other employees working in the same job classification for the same manager responsible for the deduction. This means that the employer must pay normally exempt workers overtime wages if their hours exceed 40 hours for one work week. If the deduction was a one-time occurrence or it was unintentional, the employer will not lose the exemption if the employee receives reimbursement.

The employer will receive safe harbor from losing the overtime exemption if:
• The employer clearly explained the policy of permissible and impermissible deductions and the complaint procedure;
• The employer reimbursed the employee for the improper deduction; and
• The employer commits in good faith to comply in the future.
The employer will still lose the overtime exemption if willful noncompliance continues after receiving complaints from employees, however.

FLSA Lawyer Free Consultation

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