When Can You Deduct from an Exempt Employee’s Pay?

The Fair Labor Standards Act (FLSA) requires that all employees be paid at least minimum wage for all hours worked as well as pay of at least one and one half times their regular rate of pay for all overtime hours worked over 40 hours in a workweOLYMPUS DIGITAL CAMERAek. Employees who are classified as exempt are not subject to these minimum wage or overtime requirements.

In order to be classified as exempt, the employee must be paid on a salary basis of at least $455 per week. In addition, the employee’s work must meet certain duties tests as established by the Department of Labor (DOL). You can read more about this here.

As a general rule, exempt employees must be paid their full weekly salary for any week in which they perform work. There are very few exceptions to this and very few reasons that an employer can reduce an exempt employee’s pay.  Below is a list of the ONLY times it is lawful to deduct from an exempt employee’s payroll:

  • At the start and/or end of employment when only a partial week is worked.
    • When an employee starts their employment with an employer mid-week, you are only required to pay the employee for the days in which they work rather than the full week. The same goes for the end of the employee’s employment with the company if the final week of work ends in the middle of the week.
  • Absences due to personal reasons.
    • If an employee misses one or more full days of work for a personal reason (taking a vacation, participating in a school event with a child, attending to any personal matters, etc.). These days can be unpaid in full day increments. Sick time is not included as a “personal reason.”
  • Sick time when paid sick leave has been exhausted.
    • If the employer has a policy that provides pay for sick days and the employee has exhausted all of the paid days allowed then a deduction can be made from the exempt employee’s pay for any additional sick days taken. If the employer does not have a sick leave policy providing pay for time off work due to illness, then no deduction from pay can be made from an exempt employee’s pay due to missed work caused by illness.
  • Violating safety rules.
    • An employer can make full- or partial-day deductions for major safety violations. It is at the employer’s discretion to establish a policy which indicates the types of violation to be considered of “major significance.” This might include activities that endanger the employee, coworkers, customers, or company property for example.
  • Disciplinary Suspensions.
    • If an exempt employee is suspended for disciplinary actions resulting from a violation of company policy other than attendance or performance for one or more full days, the suspension can be unpaid. Examples of violations may include harassment or violence, among others.
  • Offset Payment of Jury or Witness Fees
    • If an exempt employee receives payment from a court for participation as a juror or witness, an employer is permitted to deduct that payment amount from the employee. The employer must not reduce the employee’s pay for the times pent reporting to jury duty or participating as a witness even if the employer does not collect the offsetting payment paid by the court to the employee.
  • FMLA covered absence
    • When an exempt employee misses work due to an FMLA related absence an employer is not required to continue the exempt employee’s regular salary.

An employer is never to make a deduction from an exempt employee’s pay due to absence for less than a full-day of pay (and in full-day increments thereafter).  If an exempt employee takes a half day off of work for personal reasons, the employer is permitted to use available vacation time for the partial day balance as long as the employee is still receiving their full salary for the day of work.

You cannot deduct from an exempt employee’s pay for ANY other reasons! If an employee does not report to work due to a holiday, due to an office closure, due to inclement weather, power outage, lack of work, or any other reason not listed above they must still receive their full salary.

With that being said, an employer with a policy requiring an employee to report to work on the day before and after a holiday in order to receive holiday pay cannot enforce this type of policy for exempt employees.

What happens if you make improper deductions? 

If the improper deduction was isolated and inadvertent, there will be no penalty for the improper deduction as long as the employee is reimbursed for the amount improperly deducted.

If it is found that an employer has an “actual practice” of making improper deductions from exempt employees, the employer could lose the exempt status for the entire time period of the deductions for ALL employees in the same job classification working for the same managers.

You may want to review your policies and procedures regarding the payment of exempt employees to ensure that you are not making any improper deductions!