Business owners and managers inevitably find themselves navigating complex HR and employment law issues, especially when it comes to employee compensation. One of the most common questions we receive as HR consultants is, “When can I deduct from my exempt salaried employees’ pay?” This question often comes up when employers are facing specific situations such as half-day absences, disciplinary actions, or reduced work hours because of lack of work. Employers want to know whether they can legally deduct pay from their exempt salaried employees’ paycheck before making an expensive mistake.
In order to prevent making an illegal pay deduction, it is crucial for employers to understand the rules for exempt employees. Exempt, or salaried, workers are classified under the Fair Labor Standards Act (FLSA) as being exempt from overtime pay requirements, which means that they must typically be paid a fixed salary regardless of the quality or quantity of the employee’s work over the course of the week. However, there are some limited exceptions where deductions are allowed. An experienced HR consultant can help employers navigate these exceptions to ensure they are following labor laws.
When Can I Deduct from My Exempt Salaried Employee’s Pay?
Employers are not obligated to pay an exempt employee when they perform no work in a workweek (regardless of the reason), but there are only limited allowable deductions for shorter absences.
In most cases, partial day absences do not qualify for pay deductions from an exempt employee’s pay. Deductions from an exempt employee’s pay are allowed for some full-day absences, including for illness (when covered by a sick leave plan), personal reasons, disciplinary suspensions, unpaid leave under the Family and Medical Leave Act (FMLA), or during the first or last week of employment if the employee doesn’t work the full week.
State wage deduction laws can impose additional limits on pay reductions, so employers must familiarize themselves with both federal and relevant state pay laws to ensure they are compliant. For example:
· Florida employers can deduct pay from exempt employees without additional state laws governing deductions because Florida does not have stricter restrictions on deducting pay from exempt employees than the FLSA requires.
· New York employers must follow stricter wage and hour compliance laws than some other states, which can impact the legality of making deductions from exempt employees’ paychecks.
For example, New York has a list of prohibited pay deductions, including:
- Repayment of loans, advances, and overpayments (not in accordance with 195-5)
- Employee purchases of tools, equipment, and attire required for work
- Recoupment of unauthorized expenses
- Repayment of employer losses, such as fines/penalties, spoilage or breakage, caused by employee conduct
- Fines or penalties for tardiness, excessive leave, misconduct, quitting without notice
- Contributions to political action committees, campaigns and similar payments
- Fees, interest or the employer’s administrative costs
10 Common Pay Deduction Question Scenarios Faced by Our HR Clients
Let’s take a look at some common scenarios faced by our HR clients:
Scenario 1: My employee has run out of PTO/sick time but needs to be out for a half day or a couple of hours for a doctor’s appointment.
An employer may not deduct pay when an exempt employee has run out of PTO/sick time and needs to be out of the office for a partial workday to attend a doctor’s appointment.
Scenario 2: We need to cover a new employee’s uniform costs.
While deductions from an exempt employee’s pay for items that benefit the employee are allowed under federal law (such as for health insurance premiums and pension plan contributions), employers cannot deduct pay to cover the cost of an exempt employee’s uniform.
Note: New York employers may only deduct pay from an exempt employee’s salary for a specific list of items that benefit employees, including health and welfare benefits, pension and savings benefits, charitable benefits, representational benefits, transportation benefits, and food and lodging benefits.
Scenario 3: My employee is a newer hire and we do not want to give them holiday pay.
No deductions are allowed to an exempt employee’s paycheck for holidays unless the employer closes for a full workweek. Policies that require employees to work the day before and after a holiday are also not allowed.
Scenario 4: My employee ran a truck into a tree and the truck needs to be repaired.
An employer may not deduct pay from an exempt employee’s paycheck because they accidentally damaged employer property, including for a work vehicle that is required to perform work, since deductions are not allowed based on the quality of the work performed.
Scenario 5: My employee got into a fight with a customer and management sent them home for the day.
Deductions are allowed for disciplinary suspensions of one or more full days for infractions of workplace conduct rules, such as violent altercations, as long as there is a written policy that applies to all exempt employees. Partial day suspensions do not qualify for a pay deduction.
Scenario 6: My employee was sent home for the afternoon because we didn’t have any work for them to do.
An employer cannot deduct pay from an exempt employee’s paycheck because they were sent home after a partial day of work. The rule is that if an employee is available and ready to work, an employer may not dock an exempt employee’s pay unless there is no work available for a full workweek.
Scenario 7: My employee has jury duty.
An employer cannot make pay deductions for an exempt employee’s absence due to jury, witness duty or temporary military duty, unless the absence is for a full workweek. It is allowable for the salary to be offset by jury or witness duty fees or military pay received by the employee.
Scenario 8: My employee wants to take a half day for personal reasons.
If any work is performed in a day, deductions from an exempt employee’s pay are not allowed even if the employee takes a few hours off for personal reasons.
Scenario 9: My employee put others in serious physical danger with their workplace conduct part way through their workday.
Employers are allowed to make full or partial day pay deductions from an exempt employee’s paycheck if the employee has violated major safety rules in the workplace such as smoking in an oil refinery. A deduction is allowed whether or not the employee is sent home after committing the safety violation.
Scenario 10: My business was closed due to icy roads for two days last week.
As long as the exempt employee is available and ready to work, an employer may not make deductions from pay because of business closures due to weather or road conditions, family emergencies, or any other reason unless no work is available for a full workweek.
Safe Harbor Rules
When an employer wants to make a pay deduction for an exempt employee for whatever reason, it must verify that the deduction is allowable under the FLSA. Improper deductions can jeopardize the employee’s exempt status, leading to potential legal and financial penalties for the employer. Employers can avoid penalties for improper deductions by following the FLSA safe harbor rules under 29 CFR 541.603, which include:
- Creating a clearly communicated policy that prohibits improper deductions.
- Establishing a complaint procedure.
- Reimbursing employees for any improper deductions in a reasonable time frame.
- Making a good-faith commitment to comply in the future.
Trust Seay Management For Guidance on Compensation Laws
Seay Management provides a broad range of HR services designed to support your business’s growth and ensure compliance with all state and federal employer regulations. From navigating complex wage and hour laws to developing fair and effective compensation strategies, our team is here to help you make informed compensation decisions that protect both your business and your employees.
Contact us today to learn more about how we can support your business around employee compensation and other HR issues.
Please note: This article is for informational purposes only and does not constitute legal or professional advice. Seay Management Consultants makes no representations or warranties, express or implied, regarding the accuracy, completeness, or applicability of the information contained herein.
Seay Management Consultants disclaims all liability for any actions taken or not taken based on the information in this article. Readers are solely responsible for their own interpretation and use of this information.
